"The technical backdrop has taken a distinctly bullish turn," says Michael Ashbaugh in MarketWatch's The Technical Indicator. Here, he looks at the market averages and a trio of stock ideas.

"Perhaps most obviously, the S&P has staged a 10-to-1 rally, and a 28-to-1 spike, from its 200-day moving average. And by any measure, this raises a bullish technical flag.

"With a gravity-defying rally, the S&P extended its gains, clearing resistance at 930 last Thursday. From current levels, significant resistance holds at the 2009 closing high of 946 while initial support rests at 930.

"Meanwhile, the Dow's near-term view is similar. With this week's rally, it's staged a 'V'-shaped reversal, breaking to one-month highs. Looking ahead, significant resistance holds at 8,799 - matching the 2009 closing high - while support rests at 8,580, matching the breakout point.

"Stocks are likely in a new downtrend," says Michael Ashbaugh. In Marketwatch's The Technical Indicator, he looks at the S&P's prospects and some drug stocks set to buck the trend.

"The S&P 500 has violated its major moving averages in the closely tracked 900 area. The recent downturn was convincingly bearish, placing the burden on market bulls to reassert the uptrend.

"After finding resistance in the 923 area, the S&P sold off sharply, edging back under its 200-day moving average, which currently holds at 900 and now marks resistance. This is bearish price action.

"The last technical bastion of bullishness had been the 1490 support level on the Standard & Poor's 500 Index," notes David Nassar. In his Marktwatch Technical Indicator he observes, "That level had held numerous times, despite a deteriorating technical picture from the other indicators."

Now, he notes, "It has now given way. This now leaves a wide area of resistance on the S&P 500 chart, from 1490 up to 1520. It will likely have trouble getting back through that area, because there were so many longs 'trapped" at those prices.'

The technical continues, "Market breadth (advances minus declines) has not been good lately. That's good news and bad news. It's bad news in that breadth continues to remain on a sell signal.

"However, it's potentially good news because -- once the breadth indicators get extremely oversold (and they're well on their way to doing that right now) -- lasting buy signals can eventually spring from deeply oversold readings.

"However, one must be careful about waiting for confirmed buy signals before making a speculative purchase. 'Oversold' does not mean 'buy.'"

Meanwhile, as for specific buy recommendations, Ashbaugh says, "Uranium Resources (NASDAQ: URRE) is a low-priced, volatile stock that broke out to the upside on Tuesday. Stock volume patterns are very strong, and there is support at 12-1/2.

"This is a 'hot' industry that is undergoing some consolidation. As a result, there are vague takeover rumors for URRE. The stock pulled back today to support near 13, giving us a convenient entry point.

"The options on this stock trade with wide markets, as they are somewhat illiquid, so be sure to stick to the limit. We recommend the URRE Dec 12.5 calls at a price of 2.10 or less. Stop yourself out on any close below 12."

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Technician Michael Ashbaugh expects a "cooling off period" before stocks again test their all-time highs. Yet, he remains bullish, with a particular focus on the oil services sector. In his MarketWatch Technical Indicator he explains, "The Dow was recently trading 206 points from all-time highs while the S&P 500 was 26 points from all-time highs."

He suggests, "Looking ahead, that's where the tension rests. The U.S. markets are facing significant resistance at record highs, and are extended near-term after a massive two-day spike. That means a cooling off period is likely due before they make a legitimate run at record territory."

Regardless of any short-term pullback, he adds, "The market's recent decisive break atop the 50-day moving average is distinctly bullish. The U.S. markets also confirmed their uptrend with a 24-to-1 positive volume session last Tuesday, meaning the longer-term path of least resistance is higher."

Meanwhile, one of his favored sectors, based on their technical positions, is the oil services stocks. He explains, "The Oil Services Index remains among the strongest sectors. We have selected several names to highlight as they are well positioned technically. And, their relative strength makes them better bets longer-term."

The advisor points to Weatherford International (NYSE: WFT); Cameron International (NYSE: CAM); Schlumberger (NYSE: SLB); National Oilwell Varco (NYSE: NOV); and FMC Technologies (NYSE: FTI).

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"The August lows now represent important technical levels defining the U.S. markets' primary uptrend," notes Michael Ashbaugh. The editor of The Marketwatch Technical Indicator explains, "Specifically, the S&P 500's August low holds at 1,427 while the Nasdaq's August low holds at 2,492. In addition, the Dow's August low holds at 13,134.

Ashbaugh continues, "For the Nasdaq and the S&P, a break below those levels would mark a failed test of support, also placing each index under its 200-day moving average. And if the breakdown were decisive, the primary trend would likely turn lower.

Yet "as ugly" as the current backdrop looks, he contends, from a strictly technical standpoint, the primary uptrend still has the benefit of the doubt.

Meanwhile, he suggests, we continue to find some names that are well positioned technically. These, he says, are intended as radar screen names - sectors or stocks positioned to move near term. In this light, the technician sees ongoing strength among chip-equipment names.

Ashbaugh says, "Each of these names broke out decisively in mid-July. Since then, Lam Research (NASDAQ: LRCX), ASML Holding (NASDAQ: ASML) and KLA-Tencor (NASDAQ: KLAC) have pulled in, establishing support around the breakout point. Further, he adds, Applied Materials (NASDAQ: AMAT) and Varian Semiconductor (NASDAQ: VSEA) are the group's strongest names, knifing even higher after the initial breakout, despite a down market."

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Michael Ashbaugh, editor of The Marketwatch Technical Indicator, considers the market's recent move a legitimate breakout. He explains, "Each of the major U.S. benchmarks -- the Dow, the S&P 500, and the Nasdaq -- has broken sharply to multi-year highs, and in the process, notched consecutive closes above its 20-day bands."

Further, he adds, each major U.S. benchmark cleared its June high. He states, "That means technically speaking, the latest rally carried the earmarks of a valid breakout. As the major U.S. benchmarks extend higher, the potential upside from current levels is still significant."

Meanwhile, as to specific market sector, he notes that "We have chosen to highlight some names that are well positioned technically. These are intended as radar screen names -- sectors or stocks positioned to move near term."

Technician Michael Ashbaugh notes that many investors are showing a "fear of heights" that is increasingly evident on any signs of market weakness. The editor of The Marketwatch Technical Indicator feels these concerns are "understandable" given the market rise in recent months.

Futher, on a near-term basis, he agrees that the U.S. markets are "showing signs of tiring" and technical price action suggests a corrective phase is "more likely than not."

However, he states, "Setting aside the day-to-day price action, the longer-term backdrop remains distinctly bullish. With recent gains, the U.S. markets have staged a valid break to multiyear highs, and randomly calling market tops - or even raising near-term caution flags - has been counterproductive." He continues, "Market weakness will mark an opportunity, not a threat." Meanwhile the advisor is sees the oil service sector as particularly favorable.

He observes, "Several oil & gas equipment stocks remain technically well-positioned." Four issues that he suggests deserve attention are Universal Compression Holdings (NYSE: UCO), Dawson Geophysical (NASDAQ: DWSN), Omni Energy Services (NASDAQ: OMNI) and Bolt Technology (NYSE: BTJ).

He notes, "These companies aren't oil drillers, but instead, provide the equipment or services to facilitate oil and gas exploration. Technically speaking, each has a somewhat different backdrop."

Ashbaugh continues, "However, the one common trait is that each has recently touched multiyear highs on strong volume, while the subsequent consolidation has come on lighter volume. That means the group remains well positioned for further gains."

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"The U.S. markets have confirmed their uptrend," says Michael Ashbaugh in The Marketwatch Technical Indicator. The analyst notes, "The S&P 500 has notched six-year highs, and has also closed above its 20-day Bollinger bands on three of five sessions."

The Dow Jones Industrial Average, he adds has notched all-time highs, also closing above its 20-day Bollinger bands on four of five sessions. Likewise, he notes, "The Nasdaq has broken to six-year highs this week, resolving its negative divergence."

Also bullish, he asserts, is that the the Russell 3000 - a comprehensive benchmark encompassing about 98% of all U.S. market capitalization - has set all-time highs along with the Dow, setting the stage for what he says could be a "significant long-term market move."

The technician notes, "Certainly, the U.S. markets may be due a cooling off period after a strong four-week run. The Dow's recent performance notwithstanding, every day can't be an up day. Nonetheless, the strong April rally has confirmed the U.S. markets' primary uptrend, and on a longer-term basis, the path of least resistance remains higher."

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For the more sophisticated trader, Michael Ashbaugh, editor of Marketwatch's The Technical Indicator, reivews the technical condition of the market following last week's decline.

And while he believes the drop inflicted "serious technical damage" to the general market, he still finds one sector -- telecom stocks -- showing favorable near-term strength.

As for the overall market, he explains, "When we assess the S&P 500, we look at the 20-day Bollinger bands. A break above or below the bands is statistically unusual, and consecutive breaks outside the bands are even more uncommon.

"Perhaps not surprisingly, the S&P closed way under its 20-day bands after Tuesday's bloodletting. And even with Wednesday's gains, the S&P notched a second consecutive close under the bands."

What does this mean looking ahead? Ashbaugh notes, "Technically speaking, a break under the bands suggests a tension between two time horizons. On a near-term basis, the breakdown suggests an index is oversold and due to bounce. It's edged outside the band that brackets two standard deviations of its 20-day volatility, and a reversion to the mean should be expected.

"Yet on a longer-term basis, the underlying sell pressure has been extreme, and will likely lead the markets lower. In the end, significant technical damage was inflicted on Tuesday, and this is a market to avoid near-term until better signs of a bottom are in place."

Meanwhile, he notes, "The telecom sector may be the best positioned sector after this week's losses. The group has two things working for it in the current market. To start, it remains within a strong uptrend, notching five-year highs as recently as last Monday."

Fundamentally, he adds, "The group also has defensive characteristics that help insulate it from broad-market downturns. The Telecom Index rallied from support Wednesday at the breakout point and the 50-day moving average."

Within the Telecom Index, the technical advisor sees four stocks that he believes appear well-positioned to rise over the near term: Citizens Communications (NYSE:CZN), Qwest Communications (NYSE:Q), Embarq Corp. (NYSE:EQ) and Sprint Nextel (NYSE:S).

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