This is Mike Santoli, Senior Markets Commentator at CNBC’s daily notebook for ideas on trends, stocks and market stats. The market argues that Thursday’s rare, sharp reversal to the upside meant something — although it cannot be considered decisive with certainty. The recovery from there represents some footing at the very long-term 200-week moving average level for the S&P 500, with gloomy sentiment, deeply defensive tactical positioning from investors, brighter seasonal effects, and an earnings season that started looks okay going relative to lowered expectations. Benevolently but not implausibly, the recent action can still be seen as a violent retest of the mid-June lows in the context of a chaotic, risky attempt to bottom. There has been no net downtrend since June 16th, even as yields have risen, earnings expectations have eased and recession expectations have solidified. Of course, nobody knows whether this will succeed, and of course the “don’t fight the Fed” rule still applies in a volatile economy. Every good nine-month rally has eventually turned into a major selling opportunity. And the S&P hasn’t even recovered to Friday morning’s high at this point, so it might just be a little more loud, untrustworthy action. But without making a big call, here are some relevant range limits at play. No rally really gains much credibility unless/until it breaks above 3,900 and perhaps makes another attempt at the 200-day moving average that thwarted the summer rally (now around 4,150). Bank of America technical strategist Stephen Suttmeier noted that previous cyclical bear markets have shown a break of this 200-week moving average within longer-term “secular bull” periods before finding footing for an eventual further rise. And perhaps Monday’s rip shows that in the near term, the bear case was partially dependent on something exploding in the global market landscape, with the UK mulling fiscal stimulus and the massive collapse in UK bond yields reducing the immediate risk of a blast and dragging US yields lower on relief some pressure. There is no telling how long the market can remain accident-free. In terms of positioning, Renaissance Macro noted that commercial traders — the smart money market makers who occupy the other side of the public’s speculative bets — are now pretty long Nasdaq 100 index futures. Past cases have not always coincided with a market bottom, but the short-term risk/reward ratio tends to be better than average when it does. Bank of America’s earnings were a decent hit and show what is perhaps more relevant to the broader market, a consumer who retains a decent ability to absorb higher prices, sustain spending and borrow more without much stress. Financials have been improving relative to the broader market for the past two months and get an extra boost here. Much of the strength is in insurance, but banks are now recovering a bit. Difficult as stocks look fairly cheap and are weathering the slowdown well for the time being, but credit pressures should continue to mount and stocks will remain captive in the ‘recession is coming’ sentiment for as long as it lasts. This market has many problems, but the valuation of the typical stock is no longer among the best. Here we see the price-to-earnings multiples for the coming year for the S&P 500, the equal-weight S&P 500 (again near the late 2018 lows) and the S&P 600 small cap (near the Covid crash low). The near-universal resistance to this observation is that post-Q3 earnings forecasts are too high. Probably. But forecasts for the year ahead are often “too high” even in normal times, and compressed price-earnings ratios result in part as the market understands the downside risk to earnings. Some also show that small-caps as a group have “earned too much” in recent years relative to long-term earnings trends, putting even more pressure on their earnings prospects. We will see. Market breadth is near positive extremes, 95% up volume on NYSE. If it holds, some observers will view such a boost as potentially significant. Credit markets are strengthening but have been under noticeable pressure of late. The VIX hits a full point despite Monday’s typical bullish bias but remains excited. It is mainly the extreme volatility in bonds and currencies that is keeping option premiums high, plus the fact that a 2.5% index rally reflects an as-yet-unclear band.