The major market indices indicate that a short-term rally is due.

Our internal indicators, chiefly the Moving Average Convergence/Divergence (MACD) and momentum, are oversold, and the stochastic has issued a short-term buy signal.

Additionally the sentiment indicators, chiefly Investors Intelligence, the American Association of Individual Investors' (AAII) sentiment survey, which has been very bearish for three weeks, and the CBOE Volatility Index (VIX), tell us that the public is bearish and insiders are bullish.

Even though the trading targets could be as close as Dow 8,500, they could also extend to the top of the three-month trading range at Dow 9,300. This may seem like just more of the same type of sideways trading that we've become used to, but it could also mean that a major market base has formed.

On Thursday, stocks fell 4.3% shortly after the opening, then rallied back to break-even on Apple's (NASDAQ: AAPL) earnings only to be crushed before the close on lousy earnings by Microsoft (NASDAQ: MSFT).

It's this kind of extreme volatility that sends money managers to Clancy's Bar, since it gives few hints as to the market's true direction.

Contrary signals are everywhere.

The bulls point to a tenacious support at S&P 500 (SPX) 800 to 820; an oversold stochastic, which almost gave a buy signal on Wednesday; grossly oversold internal indicators yesterday; and high fear numbers by the Association of American Investors (AAII) and others.

But the bears say that a breakdown is almost upon us and point to the higher CBOE Volatility Index (VIX), a foreboding series of charts, and a world banking crisis that seems to have no end.

So, what's an investor to do?

One of the first things that I did was to redraw the support line at S&P 820 to reflect the lows at 804 on Tuesday and Wednesday. This results in a broader major support zone at SPX 800 to 820. A break of that zone would probably result in an immediate test of the closing low of 752.

At 752, we could hold again by forming a double-bottom and a volatile sideways market for the rest of this year.

But if S&P 750 is crushed on high volume, look out below, since there is little support before 620-650.

Sam Collins is a contributor to OptionsZone.com.

Bear markets can be tortuous, and this one has had an extreme measure of twists and turns. Yesterday, stocks closed higher erasing most of the losses of the previous day when sellers drove the market to a point where it seemed that a test of the November low was almost inevitable.

The significance of Wednesday's rally is two-fold.

First, it could signal a challenge to my analysis on Tuesday, which concluded that last Thursday's daily reversal (up) and then the lower low on Tuesday meant that we are still in a short-term downtrend.

Second, regardless of the chart signal, the support line at S&P 500 820 should probably be redrawn to reflect the lows of Dow 7,939 and 7,936 (Tuesday and Wednesday, respectively) as meaningful support, since a break of those lows would most certainly lead to a full test of the market's low.

So, yesterday's rally, as impressive as it was, is no more conclusive than Tuesday's decline, since it failed to break the high of Friday. Looking further into the chart is no help either, since the stochastic has yet to issue a buy signal despite being tantalizingly close to it, and the other internal indicators backed off, too.

The CBOE Volatility Index (VIX), however, did fall by more than 10 points yesterday, and that is a significant and bullish move toward stability, and the other internal indicators are very oversold.

So, even though the balance is tipping to slightly favor the bulls, we'll have to be patient and let the market lead the way since volatility is very high. Anticipating a move in either direction could lead to a loss.

Sam Collins is a contributor to OptionsZone.com.

Although they spent most of the day in the green the indexes gave up ground through most of the session to close just in the red.

The NYSE had volume of 3.6 billion shares with 1,612 shares advancing while 1,706 declined for a loss of 6.18 points to close at 9,428.86. On the NASDAQ, 2.2 billion shares traded, 1,426 advanced and 1,685 declined for a loss of -2.65 to 2,542.24.

EMC Corporation (NYSE: EMC) rose $1.33 (8%) to $19.05; ahead of it's subsidiary VMware making its debut on the NYSE tomorrow in an IPO that analysts are predicting will be big. EMC will retain 90% of the shares. This is likely the reason for the active calls as EMC Corp. (NYSE: EMC) saw heavy volume on the August 19 calls (EMCHT) with over 56,000 options trading.

Centex Corporation (NYSE: CTX) fell $2.78 (-7%) to $35.63. Lennar Corporation (NYSE: LEN) fell $2.53 (-7%) to $32.92. Brinker International (NYSE: EAT) rose $1.82 (7%) to $28.98. The Goodyear Tire & Rubber Company (NYSE: GT) rose $1.70 (6%) to $28.95.

In options there were 5.4 million puts and 5.8 million calls traded for a put/call open interest ratio of 0.92. The CBOE Volatility Index has been high closing today at 26.57. This is the fear indicator of the market. Not only is the index up, but options on the index are high with the CBOE S&P 500 Volatility Index (NASDAQ: $VIX) moving volume on the August 25 calls (VIXHE) with over 35,000 contracts.

Other stocks with active options include State Street Boston (NYSE: STT) saw heavy volume on the November 75 calls (STTKO) with over 60,000 options trading. Most of the active puts were on the indexes and the iShares Russell 2000 ETF (NYSE: IWM) had volume on the August 78 puts (IOWTZ) with over 86,000 options trading.

Kevin Kersten is an Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.