It was another eventful week. Stocks managed to reverse higher. Most of the U.S. indices ended Friday up more than +4% for the week. The small cap Russell 2000 index posted a +6.1% gain. Bonds saw their rally stall and trimmed their August gains as money flowed into equities. Even gold saw a pull back after setting new all-time highs near $1,920 an ounce on Monday. There was plenty of speculation throughout the week that stocks were rebounding on hopes that Bernanke would offer new stimulus on Friday's speech from Jackson Hole.

The rebound actually began on Tuesday, August 23rd thanks to a bullish bounce in stocks overseas, mainly in Europe. Thursday turned out to be a volatile session with financial stocks spiking higher on news that Warren Buffett's Berkshire would invest $5 billion in Bank of America (BAC) through preferred stock and warrants. Thursday's morning gains faded thanks to an active rumor mill. One of the biggest rumors was worry that Germany might lose its triple-A credit rating but the agencies reaffirmed the country's debt while the market was still open. Another major headline on Thursday was news that Apple's (AAPL) CEO Steve Jobs would resign due to his failing health.

In economic news this past week the U.S. durable goods orders came in better than expected. Yet the revision to Q2 GDP was moved lower to +0.99% growth instead of +1.3% growth. There had been worries that Q2 GDP might have been revised down into the +0.0%-0.5% range due in part to the impact of Japan's earthquake and tsunami. Of course one of the biggest events was Ben Bernanke's speech on Friday. The Fed chairman failed to offer anything immediate for the markets but stocks rallied anyway.

Essentially Mr. Bernanke did some significant finger pointing at Washington and suggested that the fiasco over the debt ceiling extension this summer has done significant damage to consumer, business, and investor confidence. There also seemed to be some contradictory statements. On one hand Bernanke suggested the Fed has done all it can do to foster growth and the rest will be up to Washington to "promote macroeconomic and financial stability; adopt effective tax, trade, and regulatory policies; foster the development of a skilled workforce; encourage productive investment, both private and public; and provide appropriate support for research and development and for the adoption of new technologies." Yet he also said that they would extend the next FOMC meeting (on September 22nd) to a two-day event to further discuss all the different policy options available to the Fed so that they can take the best course of action to do something further to stimulate the economy.

The Fed remains extremely frustrated with the slow growth in the economy but Bernanke was still singing the same "second half bounce in 2011" song. Ben believes the U.S. will see +2.0% growth for the rest of the year but that doesn't seem to line up with all the Wall Street analysts who have been downgrading their growth forecasts in recent weeks. It would seem the Fed chairman has held out the carrot for additional stimulus or further action at the next meeting but what that action could be was not discussed. Given the market's big bounce off of Friday's lows it looks like investors decided to buy the news instead of sell it. Or at least the shorts decided to cover on the news ahead of the weekend if you're feeling cynical.

Looking at the S&P500 index it rallied from support near 1120 but has been struggling with resistance in the 1180 area and has yet to actually breakout from its gap down highs back on August 18th. The 1200-1205 area remains overhead resistance as well. The S&P500 is actually trading inside a neutral pennant pattern of lower highs and higher lows. While these are supposed to be "neutral" the prevailing trend tends to resume and in this case that would be down.

There is still a good chance that the market has produced a bullish double bottom but we can't confirm that yet, at least not looking at the S&P500. We are currently moving into a week with plenty of economic landmines. The wrong news story could send stocks back toward their August lows. Personally, I would either wait for a close over 1205 or wait to buy a dip or a bounce near the 1100 level again. (FYI: a drop under 1090 would start a new bear market for the S&P500 index)

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The rebound in the NASDAQ composite was pretty impressive with a +5.8% gain on the week. The NASDAQ has a stronger double-bottom looking pattern with support near 2340. The index produced a huge bounce but it has yet to truly "fill the gap" from August 18th and the 2500 and 2550 levels remain overhead resistance.

Weekly chart of the NASDAQ Composite index:

Daily chart of the NASDAQ-100 index:

The action in the small caps looks more like the S&P500 with a neutral trend of lower highs and higher lows. The $RUT did fill the gap with Thursday's spike to resistance near 700. The action on Thursday looked pretty ugly but there was no follow through on Friday. I suspect we'll see more sideways action until Friday's jobs report. I'd focus on support at 660 and 640 and resistance at 700 and 720. Until we see a break one way or the other then longer-term investors might consider all this movement as just noise.

Daily chart of the Russell 2000

Weekly chart of the Russell 2000

The Dow Jones Transportation index saw a pretty big bounce off its Friday morning lows (+5.3%) and closed near its high for the week. You could argue that the Friday low and Monday-Tuesday lows is a short-term bullish double bottom pattern. Nimble, short-term traders could buy this bounce with a stop under Friday's low but it's still an ugly chart given all the damage over the last several weeks. Should the transports actually roll over again then we're looking at potential support at 4070 and the 4000 levels.

Weekly chart of the Transportation index:

We have a very busy week for economic reports ahead of us. Potential market movers are the consumer confidence numbers, the ADP employment report, the Chicago-area PMI, and of course the jobs report on Friday. Right now estimates are for the jobs report to show between +30,000 to +75,000 compared to last month's +117K. The U.S. needs about +150,000 a month just to stay even with population growth. We have millions and millions of unemployed workers and we're not going to make any progress until the jobs data improves significantly. Given the recent up-tick in the weekly initial jobless claims there is a good chance the Friday jobs number will disappoint.

- Monday, August 29 -
Personal income and spending for July
Pending home sales for June

- Tuesday, August 30 -
Consumer confidence for August

- Wednesday, August 31 -
ADP Employment report for August
Chicago PMI (ISM) index
Factory Orders for July

- Thursday, September 1 -
Weekly Initial Jobless Claims
(national) ISM index for August
vehicle sales

- Friday, September 2 -
Nonfarm payroll (jobs) report for August
Unemployment rate

Looking ahead this is a tough week to call. Stocks remain oversold in spite of the big bounce last week. August and September are traditionally weak months for the market. Meanwhile the end of October is the fiscal year end for a lot of mutual funds and hedge funds. Will money managers buy stocks now expecting the bounce to continue because they need to book more gains? Or will money managers avoid stocks given all the uncertainty and stay in the safety of bonds or cash?

Sadly we remain hostage to the fiscal turmoil in Europe. Some are predicting that the banking crisis in Europe is only going to get worse. The future of the EU is still cloudy at this point. That should keep things exciting if you trade currencies but it will remain a nightmare for the equity markets.

My comments from last week still apply today. A lot of analysts consider U.S. stocks cheap at current levels but they can always get cheaper. While the major indices are not in a bear market yet many of the sector indices are in or flirting with their own bear markets.

Last week it seemed that the fear of another recession in the U.S. eased somewhat. That's probably an illusion. Investors were likely distracted by all the headlines and the oversold bounce in stocks. We are still at risk of a recession and there will be a lot of focus on the national ISM data that comes out on Thursday. Readings over 50 indicate growth while readings under 50 indicate contraction. Given the recent trend of economic reports, this one could be another disappointment.

Looking past this week the potential market movers are President Obama's speech on September 6th and the next FOMC meeting on September 22nd.

If I had to predict this week then I'm looking for choppy, sideways action until the jobs report on Friday.

- James