- Technical Commentary -

February 3, 2010 (FinancialWire) (By Dr. Joe Duarte) — Shares of Goldman Sachs (NYSE: GS) have bounced back, but shares of Google (NASDAQ: GOOG) have not in the first two days of the month. The mixed message of these two bellwethers is not helping those who are expecting a further drop in the stock market.

The action in the stock market in the first two days of February is alarming to the bears as they thought that last week’s market weakness was the beginning of a long awaited correction from the March bottom. Anyone who follows the markets is aware of the litany of issues that suggest that stocks should fall. Among them are earnings that may have been factored into already high stock prices, the political issues in Washington, the rising deficits, and now an apparent deficit enlarging new budget from the White House.

What’s at issue here for traders is whether the two-day rally to start the new month is a fake out, or a lasting rebound that will take the markets to new highs. And for that, we should look at the charts and at what could happen the rest of the week.

The chart for the S&P 500 is fairly clear on this, as the 1120-1125 area remains fairly stout resistance. Somewhere in the midst of that range are the 20- and the 50-day moving averages, which have been excellent support for the market from the March 2009 bottom. Sustained breaks below those key lines, and failures to rise back above them would be signs that that the correction is the real outcome of the current trading range.

As always, traders also have to factor in the effects of the employment report, due out on Friday. The tea leaves on that report will start to come out later this week with the data from Challenger, ADP, and Monster Worldwide, as well as jobless claims.

Still, no one knows what lurks in the hearts of the bean counters at the Labor Department, and the private sector data, highlighted above in the three reports, is not guaranteed to be a good predictor of what the actual employment report will say.

What’s the bottom line? If the S&P closes out the week above its 20- and 50-day moving averages, the burden of proof will have shifted back to the bears.

[Go to http://www.financialwire.net/?s=joe+duarte to see more commentaries by Dr. Joe Duarte.]

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