Market's Moving On Up

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Last week's stock rally on horrible employment news could be a good signal that we've found a bottom.

December definitely started off on the wrong foot, but stocks bounced back from the worst of their losses amid grim economic reports that had the potential to send the market down to new lows.

Job cuts plagued the Street last Thursday, as AT&T (nyse: T - news - people )DuPont (nyse: DD - news - people ), State Street (nyse: STT - news - people ), Credit Suisse (nyse: CS - news - people ) and Viacom (nyse: VIA - news - people ) all announced plans to trim their respective workforces. Friday revealed additional evidence that the job market is worsening, as non-farm payrolls suffered their sharpest monthly decline in 34 years.

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The Dow closed the week with a loss of 2.2%. The S&P 500 Index (SPX) finished the week with a 2.3% loss, and the Nasdaq Composite (COMP) shed 1.7% for the week.

The 850 area on the SPX has established itself as an important region of support following the break below the critical 160-month moving average in the first week of October. Why are we viewing 850 as significant?

First, this area marked the lower rail of the index's trading range during the final three weeks of October. Moreover, despite considerable movement around the 850 level since Oct. 10 (the date this support was first tested), the SPX has logged only six closes below this level during this time frame.

Friday, Oct. 10, was also the day that the CBOE Market Volatility Index (VIX) traded at its greatest premium to the SPX's 20-day historical volatility, since the break of the latter's 160-month trend line. It remains to be seen whether this premium is significant enough to mark a fear-based bottom.

So why is the market finding support amid dismal economic reports that could have been a catalyst to send the broad market plunging through these important areas? First, the action in the home building and financial sectors has been impressive after the government's announced $200-billion Term Asset-backed Securities Loan Facility and the $600 billion Government-Sponsored Entities Purchase Program. There were additional reports last week of plans to push mortgage rates down to 4.5%, which could help spur housing activity.