After the hammer, we've seen a string of up-days helped, no doubt, by well-timed Fed jawboning. As soon as the markets seem to be sliding away, some central banker finds it necessary to offer his or her "opinion" on monetary policy. Zerohedge has been all over the coincidental timing of comments and their effects on the market. They have a nice chart of the markets overlaid with Fed-speak here.
In any event, the market has bounced and, as of this morning, is sitting right at its first area of resistance, marked by the dashed green line. This marks both the low from August as well as the 200 dma. Volume during the rebound has been very weak, leading me to believe that this is more of a dead cat bounce than anything else. That being said, RSI has turned up and the MACD still has plenty of "oversoldness" to work off.
Based on what I'm seeing, I would expect the S&P to continue to rally to about the 1920 level. I believe this will be the case for two reasons. First, 1920 represents the 50% retracement level from the recent correction. Second, this also coincides with the downtrend line of resistance marked by the solid green line. For the index to rally higher than 1920 would be very difficult given the level of overhead resistance sitting above that point.
On the daily chart, the RUT still has some room to move higher. Similar to the S&P, its first area of resistance will come around the 1110 level, which is the low from early August. I believe, however, that it will continue a bit higher from here, ultimately reaching that green shaded box. One reason I believe it will move to this level is that its RSI and MACD have turned positive which suggest momentum, at least in the short term, is on the side of the bulls. A second reason is that its 200 dma is a natural end point for a move higher. After falling below its 200 dma in late September, the index traded straight down, ultimately falling 10% below it. Stocks, and indices especially, like to mean revert, often violently, before resuming in their primary direction. I believe this will be the case for the RUT in the coming days.
Based on the charts, I still firmly believe that we have seen the top and that we are in the early stages of what will be a significant market decline. If you continue to be long equities, I would again advise caution and suggest that you take this bounce as an opportunity to get out while the getting is good.