Editor's Note:

If you discount the first hour of trading on Tuesday (yesterday) then the market has produced a pretty big bounce. The S&P 500 index is up +5% from its Tuesday morning lows near 1,140. The NASDAQ is up +5.5% and the small cap Russell 2000 is up +6.9% in the same time period off their Tuesday morning lows. While we remain short-term bullish on stocks that does not mean we want to chase a move like that - at least not with the S&P 500 closing right on psychological resistance at the 1200 level.

There is no guarantee the rally continues tomorrow since stocks might churn sideways as investors wait to hear President Obama's speech on creating new jobs tomorrow night (Thursday).

Most traders are familiar with a head-and-shoulders pattern, which is essentially a triple-top pattern that is supposed to forecast future declines. The opposite is the inverse head-and-shoulders pattern, which is bullish. The good news here is that I'm seeing more and more inverse H&S patterns. The signal is not active until the stock/ETF/or index breaks through the neckline, which has not happened yet for most of the patterns I'm seeing so far.

I find the growing number of inverse H&S patterns to be a bullish market development. However, I have to warn you that I am still seeing a lot of bear-flag type of patterns. These are a bit more tricky since they have a bullish pattern of higher lows and higher highs but they're just a consolidation before the prior downtrend resumes.

We are not adding any new trades tonight but I'm listing some stocks that caught my eye today.

Inverse head-and-shoulders pattern: PAYX, SYMC, STX, ORCL

I'm also seeing some double bottom patterns: HPQ, LOW, MS
(note: I would consider trading HPQ a very risky bet but you can limit your risk with a tight stop and small positions or try using call options instead)

I was also glancing at the coffee stocks tonight: GMCR, SBUX, JVA, CBOU, and PEET

We're already trading PEET. I would not trade GMCR At this time. Of the remaining three I like JVA and CBOU the best.

- James