Was this the test?

OK, we had the test and the grades are in; the support levels passed. The good news is that there is a lot of bad news, both earnings forecasts and economic data, priced into the current levels. Today’s move off of the lows shows some resilience in the bulls and the technicians. The question will be if the moves higher have any sustainability. If so, look for technical levels and, more importantly, short covering rallies by the momentum traders. I’ve pointed out the near-term levels in the S&P ($SPY) and the Nasdaq ($QQQQ) below.

Wal-Mart gave a dismal outlook, as has nearly every company that has reported earnings this quarter, and the jobs data was worse than expected. In fact, the jobless claims were at the highest level since the terrorist attacks of September 11, 2001. My guess is that the bounce today has a lot to do with what’s called the “herd mentality.” Basically, there has been lots of talk lately about finding a bottom and with this test of the lows there was some buying. As everyone sees the buying they begin to either buy or cover their shorts AND buy. The end result is, like cattle, the markets move higher because “everyone” is buying.

Tomorrow we get the retail sales, import prices, preliminary UM consumer sentiment and inflation expectations along with business inventories and natural gas storage. We also get some Fed speak from Bernanke and Pianalto. On the earnings front, A, ANF, and JCP are reporting.