"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.

"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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