I have mixed feelings about the market's manic performance in the last two months. Clearly, we fell so low at the end of February that equity prices had already discounted a miserable economy well into 2010. However, the March buying spree looks identical to every other bear market rally we've had since the downturn began in 2007.

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Let's outline technical positives and negatives at the start the second quarter, keeping in mind that these conflicting forces are likely to yield major whipsaws heading into earnings season. I expect the tide will finally turn after we hear company executives disclose their outlooks for the next six to 12 months. Sadly, those prognostications are unlikely to support higher equity prices.

Broken Channels: Bearish

The

S&P 500

index and

Nasdaq

averages broke three-week rising channels in Monday's gap-down selloff. This marks the initial phase of a trading range that will eventually give way to another rally leg or a breakdown that tests the bear market low. Look for at least one or two weeks of choppy action before a major trend in either direction evolves from this pattern.

Paradoxically, it would be more bullish if the market continues to sell off rather than grind sideways, because bulls jumping in at lower levels are more likely to hang tough and even add to positions during the next recovery attempt. But it has been many months since the market has blessed us with a simple pullback opportunity.

Wave Structure: Bullish

Step way back and look at price action since the October 2007 top. You'll notice two selling waves into last November's low, followed by a series of failed rallies. This channeled pattern is marking out a complex fifth-wave decline that should eventually terminate the broader downtrend that has been in place for the past year and a half.

However, the lack of higher lows on the weekly chart exposes the S&P 500, as well as other major indices, to a final downburst that takes out early March support. This Elliott Wave structure aligns perfectly with Fibonacci projections that show the 50% retracement of the 1974-to-2007 S&P 500 bull market at 640.

Volume Divergence: Bearish

The

PowerShares QQQ Trust

(QQQQ)

is signaling a bearish divergence, because accumulation has recovered just half the distance between the February high and March low. This is a big deal in light of the poor volume we've seen during this recovery effort. At a minimum, it tell us we're still in a bear market that could reassert itself at any time.

This divergence can be overcome with a sideways pattern that builds accumulation over time or is eliminated through a deep retracement that triggers even lower volume than the preceding rally. On the other hand, higher prices here without volume support would sharply increase the odds for a violent downturn into first-quarter earnings season.

Commodity Lift: Bullish

The industrial commodity complex, including copper and steel, is finally moving higher. This trend is a major positive for this spring market, because it reflects stabilized world demand. Of course, I understand that inflation fears are a major force driving this uptick, but it's also clear that beneficial forces are coming into play.

Which raises the China factor. A good deal of the March recovery was centered on the possibility that growing Asian markets will bail out limp demand on this side of the planet. Perhaps its just wishful thinking, but growing optimism may continue to support higher equity prices here in the States and in Europe.

Index Divergence: Bearish

The S&P 500 and

Dow Industrials

have broken 50-day EMA support while the Nasdaq-100 and Nasdaq Composite are still trading above their respective moving averages. This is triggering another bearish divergence, in which conflicting signals are likely to translate into whipsaws in the broader market.

This isn't the first time we've faced this bilateral scenario. The S&P 500 has stalled after every rally through the 50-day EMA since late 2007. This is one reason it's so tough to listen to the serial bottom-callers. Simply stated, no, it hasn't been different this time around, and no, there's little evidence the bear market is over.

Double Bottoms Abound: Bullish

Let's end on a positive note. Many stocks held above the November lows during the steep February decline, triggering potential double bottoms during this recovery effort. I say "potential" because the pattern can't be confirmed until price rallies above the center of the "W" created by the failure of the first bounce.

Suntech Power

(STP)

is carving out a potential double bottom after last week's rally. The stock held the November low above $5 and has now moved within 4 points of the "W" peak. Of course, traders can play rallies into that level, but long-term investors should just stand aside until a rally over the December high triggers a larger-scale buying signal.

Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.

Know What You Own:

In Wednesday morning's trading, the most active stocks included

Citigroup

(C) - Get Report

,

Bank of America

(BAC) - Get Report

, the

S&P Depositary Receipts

(SPY) - Get Report

and the

Financial Bull 3X

(FAS) - Get Report

.

Alan Farley is a private trader and publisher of

Hard Right Edge

, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of

The Daily Swing Trade

, a premium product that outlines his charts and analysis. Farley has also been featured in

Barron's

,

SmartMoney

,

Tech Week

,

Active Trader

,

MoneyCentral

,

Technical Investor

,

Bridge Trader

and

Online Investor

. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.

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