And on Monday, I said "If, however, a rally does not materialize this week and the S&P and the Nasdaq fall to new lows, then a new leg will be added to the bear market. But traders should be alert to the high probability of a violent bear-market reflex rally with a Dow target of at least 8,400."

The conclusion that we were due for a rally was drawn from our internal indicators -- chiefly the Moving Average Convergence/Divergence (MACD), stochastic and momentum -- and the sentiment indicators, chiefly the CBOE Volatility Index (VIX), the CBOE Nasdaq Volatility Index (VXN), the weekly American Association of Individual Investors (AAII) Sentiment Survey, data about insider buy/sells, and letter writers' sentiment taken from the weekly report from Investors Intelligence.

Yesterday, my Trade of the Day concluded with "But the indices and most sectors are now so oversold that a reflex bounce is highly likely. For traders this is not the time to take positions on either side of the market. And long-term investors should refrain from adding new positions to portfolios."

But yesterday, the market made known its near-term direction and as long as Congress members and administration officials don't react with more talk of nationalizing the banks, the Dow should be able to rally to the 8,000 to 8,400 area before running into sellers.

And if Monday's low holds, we could be trading in a range of Dow 7,200 to 8,400 and S&P 500 750 to 875 for most of this year ... and, perhaps even see Monday's low in the S&P 500 develop into the right shoulder of a double-bottom.

As for individual stocks, one I see heading higher is international software developer BMC Software Inc. (NYSE: BMC), which is why it is my Trade of the Day.

Sam Collins is a contributor to OptionsZone.com.