Stock indices retreated from typical resistance at their 50 DMAs on lower volume in the first half of the week, only to bounce on Thursday and Friday.

In friday's paper, IBD called the start of a new rally based on it's "follow through" criteria. After the market makes a potential bottom, IBD looks for a follow through day--that is, a day a minimum of 4 days into the rally attempt when a major index posts significant gains in volume greater than the previous day. This price and volume action is supposed to be indicative of institutional money reentering the market. Thursday's action in the S&P 500 and NYSE Composite fulfilled their requirements.

A host of bad news on friday cast a pallor on the market, including the failure of Washington Mutual. The intraday action in the NYSE is indicative of the whipsaw movements throughout the day.

If there's a silver lining here, it is that the market responded relatively well to the WaMu news. On the Bear Stearns/Frannie/Lehman/AIG news, the market swooned. On WaMu, the action was tame by comparison. The S&P and Dow Jones even closed Friday with some gains while the NASDAQ and NYSE Composites were basically flat.

It still looks like the 18th may be at least a near term bottom, but it's hard to see much upside to this market yet. Using the SPDRs sector analysis method, the better performing sectors have been consumer staples and health care--defensive sectors that you don't expect to spark any sort of lasting rally.

As I write this on Sunday, I see that Congress has passed will vote on some bailout legislation which will make for an interesting week to come. At this point, continue to sit back and watch things unfold.