This column was originally published on RealMoney on July 3 at 11:32 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.

It would be great to sound the all-clear signal after Thursday's monster rally, but I can't yet. There were many positives in that enjoyable session, but the market still has a Herculean task in recovering lost ground.

Conversely, it would be unwise for bears to dismiss the significance of the Fed-induced turnaround.

It's obvious that bears consider last week's rally an opportunity to reload for a decline back to the June lows.

There's one big reason to support, or at least respect, their grim market outlook: Despite last week's big price bar, the daily charts of the major indices still show a chain of lower highs.

The S&P 500 is in much better shape than the Nasdaq averages, but note the position of last week's rally in relation to the last two highs. The current uptick hasn't yet remounted the 1290 recovery level hit on June 2.

It will take a convincing move through that price to signal renewed bull strength and erase the last selloff leg.

That important task might need to wait awhile. Notice how advancing price has pushed into the top of the 20-day Bollinger bands. This is an overbought signal that predicts a consolidation or pullback phase.

The marginal push above the 50-day moving average also suggests there isn't enough support for a sustained move to higher ground yet.

I'd remain cautious on any rally this week because the chart patterns are unstable after the catapult off the lows. At a minimum, this is a dangerous time to place all-or-nothing bets on the market.

Instead, try to avoid heavy long exposure, assume buyer's risk incrementally and keep stop losses relatively tight.

It appears that the S&P 500 could retrace half of last week's rally before the bulls get their act together. This pause makes sense considering the June employment report is coming up on Friday.

Any pullback here would also correspond with a test of the 200-day moving average, which was mounted by the S&P 500 during last Thursday's rally.

Despite the many challenges faced by market bulls, I think it's wiser to be a buyer than a seller this month. As I've recently pointed out, there has been renewed buying interest in energy, retail, transportation, Internet and small-cap tech stocks. Almost all of these sectors outperformed the major averages in the rally last week and should continue to do so in coming weeks.

Here's more good news for the bulls: Other beaten-down groups are turning up from their major lows. Just take a look at biotech stocks, which had been grinding through a bear market since late 2005. Renewed interest in this volatile speculative sector could lift the underperforming Nasdaq averages throughout the summer months.

I haven't been a big Genentech ( DNA) fan in 2006. In April , I pointed out why a breakdown below $80 would signal a good short-sale opportunity. It broke that support level and dropped to $75 in early May, but it didn't print a new low while the major indices got pummeled over the next six weeks.

The blue chip is now turning higher after testing the May low four times. Notice the turnaround in the underlying accumulation. On-balance volume now shows a rounding base that should mark the end of this stock's long decline. Don't expect a vertical recovery, but the stock could remount the $90s before the kids head back to school.

Real estate investment trusts are also looking mighty good these days. I picked up Host Hotels and Resorts ( HST) Thursday and threw it into a trading account. It broke out from a three-month consolidation pattern at $21.50 Thursday. The bullish pattern reflects generous sales receipts at many hotel chains this summer.

Keep in mind that this is a swing trade and not an investment (I don't see investments in much anything these days). The long-term chart shows a major 1997 high at $23.75. It's my intention to sell a rally into that resistance level. A pullback to $21.40 or so in the next week should set up a decent reward-risk level for anyone else wanting to take this trade.

Last week's rally should generate its own momentum dynamics well into earnings season. During this period, bulls have the opportunity to heal technical damage done in the second quarter. Alternatively, bears would be foolish to get too aggressive too early in this emerging rally.

They'll have plenty of time to initiate positions at advantageous prices if and when the bulls fail at their task.

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At the time of publication, Farley was long Host Hotels, although holdings can change at any time.

Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback; click here to send him an email. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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