Extreme market pessimism has given way to hope as the market has picked itself up by the ‘ol bootstraps and staged a decent looking rally over the past several days.  Throw in a couple of accumulation days and you have the seeds of a major rally right?  Let’s not get too excited.. just yet.  While conditions have improved, tests of major resistance loom which aim to keep the current downtrend in place.  Until we can get a decisive surge above these levels, it’s best to err on the side of caution.

As we move into the latter stages of this bull market, the so called “goldilocks” scenario, where the economic numbers need to be good (but, not too good) continues to put a strain on the market.  This could be seen on Friday when a much better than expected jobs report failed to ignite another large move, most likely on concerns that it would lead to more aggressive rate hikes.  It makes gauging the effect of these numbers on the market difficult, at least initially.  Personally, I say to heck with all the numbers and let the charts do the talking.

Let’s take a look at the charts and what they have to say.

The Nasdaq remains the laggard of the major indices and currently sits a good distance away from the next major level of resistance around the convergence of the 50 and 200 day moving averages as well as psychological resistance at 2000.  This is a major hurdle for the Nasdaq and should be watched closely.  At this point, at looks like there is enough juice behind the latest move to at least test this level.

The S&P, while breaking out of that short term range around 1150, still has much work to do.  As you can see, the downward trend is still intact as long as it remains below that upward trend line off the August lows.  Currently, the S&P sits right at that point of resistance which is strengthened by resistance of the 50 day moving.  I can’t imagine that the S&P continues its V like move off the bottom and powers through this tough resistance area.  The damage done over the past month will need more time to repair itself.  Some sort of consolidation from here would be a more likely scenario.

The Dow also is also currently facing resistance at an area of previous support (which it broke through nearly one month ago).  Again, it appears more probable that that the Dow retreats from major resistance here before attempting another run at this resistance level.  How this retreat occurs will be very telling as to market health.  A quiet consolidation with light selling volume would be encouraging action and could set the market up for a big surge above these major resistance areas.