From a technical perspective, the indices have mostly improved from last week, but we still have not seen the necessary confirmation to know that the correction is over.

The first chart is of the S&P 500. This index and the Dow Jones Industrial Average still look the most bullish. Let's review the annotations on the chart, as some people may not remember from previous weeks. The orange and blue lines show two different trend channels. You can notice how the recent trend channel is more sideways, suggesting that the downward momentum is dying. The S&P broke above our trend channel and has stayed above its 200 day moving average since last week. The index has been unable to close above our resistance line, drawn at 1280, and has not yet hurdled the Fibonacci resistance at 1285-1290. The development since last week is extremely bullish and we expect the S&P 500 to soon break its resistance at 1280 and 1290. This will push the S&P 500 to 2006 highs, before a final break which we believe will put the index in the 1400 area and possibly put an end to our buy signal.

The next chart is of the Dow Jones Industrial Average. This chart also looks very bullish. The Dow has managed to break our downtrend line, but has been unable to have a strong close above it. We believe that the Dow is currently headed toward the 11,300 area, before a push to 2006 highs. As the Dow has formed a very typical double bottom formation, we have little doubt that the index will move to 2006 highs. As the Dow would then have formed a nice cup formation, we could certainly see a 1,000 point move from there, pushing the Dow to around 12,700.

The Russell 2000 has not yet completed its double bottom formation. The index is finding resistance at its 50 day moving average. Breaking this line will give stronger confirmation that the Russell 2000 has formed a bottom as well, but we still need to see a break of 705, 715, 730, and finally 740, to know that the bottom is definitely in.

The NASDAQ Composite has even more work to do. The index has still not had a sustained break above our first resistance line. Once this line is broken, resistance is in the 2150 and 2190-2200 area.

As we have mentioned in recent commentaries, the S&P 500 and Dow Jones Industrial Average have an extremely bullish look to them, while the Russell 2000 and NASDAQ Composite have a lot of work to do before we can be confident that they have bottomed. With the first two charts looking so positive, it is becoming much more likely that the correction is over.