ALL CLEAR?

After a dismal January with losses not seen in some time, the markets have staged a nice rally over the last several days.  The markets remain down for the year but the S&P is quickly closing that gap. With the markets up sharply since February 3rd with no rest or pause, the next down leg will have extra significance.  If the pause or down leg is short and shallow, then we are likely to see gains in the near term and the risks seen in January will largely be abated.  However, if this rally fails and the markets turn down again, it will be key for the lows of the year to hold.  If not, we could be in for a much deeper (and more painful) correction.  As it is, while January was a poor month, the correction has been very mild to this point - especially considering the gains from last year.  The next few days will provide much greater clarity on the near term direction of the market.   Key levels of the S&P to keep an eye on are 1850 on the upside and 1740 on the downside.  Breaks either way will likely lead to big moves in that direction.