Stocks rally, fade from resistance and close mixed. A bit tired and pensive ahead of Jobs report.

Last day of the month no doubt contributed to some of the upside seen this week as positions are rolled and some window dressing takes place. After almost two weeks of upside, however, the indices were a bit waxed and after SP500 traded 3 points above the November 2010 peak SP500 and the other indices faded. No major selloff, just a fade off the highs that left the indices mixed on the day.

NASDAQ 0.13%. SP500 0.49%. DJ30 0.46%. SP600 -0.09%. SOX -0.68%.

Futures received a boost from Germany as Merkel’s cabinet backed a larger rescue plan for, well, all of Europe. Germany went through the austerity quite some time back and its economy did not suffer the slings and arrows of the debt crisis. Unfortunately for Germany, no other European country followed suit and now Germany has to decide if it wants to bail the others out and risk taking itself down or let them fall and risk getting washed away in the swirl down the toilet. Not an enviable situation, but on Wednesday the world markets felt better by the cabinet’s decision.

That helped offset a weaker ADP report (91K versus 100K expected, 109K prior, revised lower from 114K) and a 9.6% drop in Pending Home Sales. A stronger than expected Chicago PMI (56.5 versus 52.8 expected, 58.8 prior) helped stocks further, giving them another goose a half hour into trade. Better than expected, but still the lowest since November 2009. Factory Orders turned in a solid showing as well at 2.4% versus the -0.4% in June. That is the best read in four months.

It was enough to boost SP500 through the November peak by three points (1230 versus 1227). SP500 hit that level 45 minutes into the trade. It then started to back off and we banked quite a bit of upside gain as it struggled at that level and faded. Picked up some SDS as well as some FOSL downside positions.

By the close the action was mixed but bracketing the flat line. Nothing major but the indices took a shot at the next resistance and retreated. Not a rollover; after 8 or so days of this leg of the rally they hit key resistance and stalled. With the jobs report Friday and the end of the month in the bag, it would not be surprising at all for the indices to pause for a couple of days ahead of the jobs report and then use that report as their catalyst for the next move, up or down. Again, we banked some gain and moved into some downside to position ourselves, but if the jobs report is not a negative print as some fear, the ‘whew’ response could easily be another upside move.

THURSDAY

Jobless claims before the open, ISM construction a half hour into trade. Both quite important but both are warm-ups for the Friday jobs report.

That leaves investors with an old predicament. Is bad economic data now good given it would likely get the Fed into action, though after the President’s address next Tuesday, or Wednesday, or Thursday, depending upon if he and Congress can stop it with the petty upstaging of one another? Bad data that leads to more Fed action means liquidity overload once more that goes into the financial markets and thus pushes asset prices higher. Or is bad news really bad news and means the economy is in serious trouble because QE2 did nothing for the economy and there is a snowball’s chance in hell of any meaningful stimulus getting passed. Remember, the President is going to push more of the same tired old Keynesian ideas that have never worked, Congress is not going to pass any more programs for this kind of wasteful and worthless spending, and then both will partake in the blame game in the aftermath.

Not sure what the resolution is, but at this stage of the game with all of the failed stimulus and our massive bills, economic improvement would seem to trump further economic decline. In that regard it is good to see the Chicago PMI top expectations and Factory orders posting solid gains.

As for the technical aspects, the indices rallied to next logical resistance on a nice week-plus rally, the second attempt at a relief move. The jobs report is Friday. Very logical point for the market to take a breather and on Wednesday it started to do that with the reversal off of the intraday highs.

The question is whether the reversal is just the start of a breather or the start of a failed rally. It could go either way at this point. The ABCD down patterns are the logical progression from the August 2010 lows. A series of rallies and bullish bases, a significant selloff that is the first of its kind since last May, and then ABCD downside consolidations of that selloff. If the economy is still worsening those patterns should consummate. If it is not, they will be pushed aside.

We have upside plays in position we are more than happy to let continue to the upside and make us more money. We also have a few new upside plays we can buy into IF we get the right conditions. The market has rallied for almost two weeks and has rallied a long way in the process; acquiring new upside positions is a bit more problematic here.

We have downside plays at the ready if this move rolls over. The downside patterns are there and if they start to consummate it could get ugly. FOSL tested the 50 day EMA and a gap point for the second session and then sold off on strong volume, the strongest in a month. It is in an ABCD pattern and while it held the 20 day EMA on the Wednesday close, it could tumble a ways. Many patterns very similar to FOSL out there and we need to be ready, and we are, in the event the market rolls. Heck, just look at NASDAQ: it has its own ABCD, gapping to a doji Wednesday right at the 50 day EMA and the March/June lows. The picture is there but will it roll over. We will be ready when the market makes its decision.