With February in the books, the S&P500 closed the final week of trading down 0.4% but still ended the month up 2.9%. The NASDAQ continues to be the strongest index in terms of gains, up 4.2% for the month. Domestic earnings continue to be strong, but renewed concerns over Greece and new worries about Spain and other European Union nations have led to whipsaw in the equity and debt markets.

Friday’s announcement that GDP grew at a 5.9% annual rate in quarter four of 2009 was a strong sign that the economy continues to improve. However consumer confidence continues to crumble as households remain concerned over the future of the economy.

Looking forward to this week, there are a few more important earnings announcements remaining, with Costco (COST) and Marvel Technology (MRVL) reporting. Investors’ focus will be on some key economic announcements however. ISM Manufacturing numbers are set to be released before the market opens on Monday and the unemployment rate on Friday. Expect more volatility in the market in response to these numbers.

Overall equity markets continue to push higher, but not at the same rates as in 2009. Dips are still being bought heavily and are seen as buying opportunities by major investment firms. If economic indicators continue to show improvement, look for continued buying momentum to the upside. The wildcard is that Treasuries continue to gain momentum as well. We feel this means an explosive move one way or the other seems to be in the cards for March.

Regarding the Russell 2000, as we talked about last week, waiting for a pullback before going long the index was important. We got that pullback on Tuesday and again on Thursday. Both times, the Russell bounced perfectly off the 620 level. It ended the week at 628, which we feel is still a strong entry point for Monday.

If the index can get a little momentum behind it and the dollar can continue to strengthen, look for a breakout this week. We recommend an entry on any pullbacks Monday, with a stop at 615 and a target of 640 by the end of the week.

The Fed surprised investors Thursday after the equity markets closed, announcing that they are increasing short-term discount rates a quarter percent to .75%. The dollar immediately spiked after the announcement, causing a sharp pullback in the Euro as well as equity futures. By Friday morning however, most of the gains had been given back as the Euro rebounded and so did the market futures. Friday was a relatively quiet, low-volume day considering it was February expiration.

This week we want to refer back to a blog post we did in early December regarding our analysis of the 1929 market crash versus the 2008 crash. You can view the original post here:
http://www.smallcapvisions.com/scv-blog/42-1929-vs-2009

At the end of the post you will see that we have added an updated chart. Looking at this chart, we can see that the DOW is once again testing this level of 10,500. Our feeling is that failure to break through this level could signal sideways to down action for the remainder of the year. It would also leave our analysis intact, meaning that the last year and a half of price action in equities has coincided almost perfectly with the 1929 crash and bear market rally. Eventually, the DOW lost 86% of its value before bottoming out in 1932.

With that said, the DOW breaking through 10,500 on strong volume would be a very bullish sign for the remainder of 2010. Failure to do so could mean equities begin a slow, steady pullback. If the Fed continues to raise interest rates this could also have a negative effect on the value of equities. We are waiting to see how this critical level plays out.

The Russell enjoyed another strong week thanks to an improved dollar as well as continued upside in equities. The index closed the week at 631, slicing through the 625 level with no problems on Thursday. Look for a pullback early this week to this level. If the dollar can remain strong, it will be possible for the index to retest the January highs of 650 within the next few weeks.

Despite a volatile week on Wall Street that included announcements of a possible Greek bailout and tightened Chinese monetary policy, investors continued to buy the dips in equities markets. Friday was an especially good example, with the indexes erasing large morning losses and the NASDAQ and S&P500 finishing positive on the day. The close in Friday’s session was especially interesting, as large amounts of buying came into all sectors of the markets.

Investors will be watching this week for a decision by the European Union as to how they will help Greece. Equity markets are closed on Monday in honor of President’s Day; however FOREX and Futures markets will be open. It is very possible that the markets to open Tuesday on a huge gap up or down relating to any news coming out of Greece.

This week also brings February options expiration week which should add more volatility to the markets. Many analysts have predicted that despite the volatility, markets will remain within a trading range. That range is the S&P would most likely be 1,040 to 1,080. The DOW Jones is hovering right around the important psychological level of 10,000.

Barring any unforeseen major events occurring, our market outlook remains mildly bullish. If the S&P can continue to scrap higher and close decisively above the 1,080 level, look for some serious short-covering to come into the markets, driving bids even higher. The short-interest buildup during the pullback that began two weeks ago may become the bear’s worst enemy over the next week.

If you took our advice and got long the Russell index after last week's newsletter, you would have caught a nice pop. The index bounced perfectly off the 200-day moving average two weeks ago. In last week’s newsletter we noted this and suggested getting long with a stop below the 200-day moving average. Since then, the Russell has experienced a strong 25 point run higher, closing at the 50-day moving average on Friday.

This week, our outlook is neutral to bearish on the index. The buying opportunity is now gone and a pullback will be necessary before an entry is advised. The strong dollar last week particularly helped the index. Look for sideways to down trading this week, which may set up the next buying opportunity.

Weekly losses on the major indices now rest at four weeks. Renewed fears of a global slowdown and foreign government debt have weighed heavily on the markets since the beginning of the New Year. The added worries have brought volatility back into the equity markets. The $VIX has rose 22% in the last four trading sessions, signaling more indecisiveness to come.

Domestically, the economy continues to look as though it is stabilizing. On Friday, it was announced that the nation’s unemployment rate declined to 9.7% from 10% the previous month. President Obama is urging Congress to back his plan to take $33 billion from the leftover TARP funds and issue tax cuts and hiring incentives for small businesses.

Despite three triple-digit moves last week in the DOW, the index closed the week down only -0.6%. After trading down as much as -167 points intraday, the index reversed late in the session to close up on the day. The S&P 500 ended the week at 1,066, bouncing 24 points higher in the last hour of trading alone.

Looking forward to this week, investors will be watching the Treasury budget release on Wednesday and the retail sales figures on Thursday. We are looking for a technical bounce in equities and weakness in the dollar.

Another strong technical week for the Russell index. After rallying up to the 600 level on Tuesday, the Russell pulled all the way back to the 200-day moving average Friday before bouncing. This signals a possible re-test of the 600 level this coming week.

The afternoon rally on Friday was impressive to say the least. Dip buyers stepped in on all major indices in the afternoon and were able to wipe out heavy morning losses. This is technically bullish for the upcoming week as long as the worries of international debt do not arise again.