Lots of talk these days about a bottom and we are certainly in the spirit with a seasonally strong period. I would argue that price action is looking a lot better, and charts are starting to build bases from which we could see higher levels. Friday was a key "hold" day at the 818 level for the SPX. This number was tested two other times last week and held stiff, so that is the line in the sand, with the VIX at the 66 or so level each time around. Sure the market has rallied 20% or so off the low, and perhaps some type of corrective action is in order, we'll be watching and looking for entry points. Some other things to think about are below.

Let's Not Forget. It's still a bear market.

Resistance. It's the levels above current price where investors and traders say "get me out, I'm back to breakeven." Well, it's all over the charts and with higher volume to boot. Simply put, as price levels are achieved sellers are going to come out and dump stock, increasing supply and putting a damper on price.

That's ok, but likely puts stocks in a range if buyers come in and pick them up. Good for the long term, bad for the short term as the market remains choppy. Regardless of your opinion about hitting "bottom," this is not a good trend for option traders. I like to see momentum swings with moves in volatility. Stocks have been beaten down severely, so maybe there is a pulse.

Dropping Volatility and Reflating the Economy

Volatility has certainly been on the minds of investors and traders, and since August we've seen a big surge in this indicator. I think the push here is related to the uncertainty about our financial system and breakdown in our economy, and while the market always "gets it right," this time it once again discounted the future. I'm not sure what all this talk about quantitative easing is all about, I don't have a Ph.D. but I suppose it's some form of help from the Fed. It seems that reflating the economy, adding more dollars into the system along with spending those dollars quickly allows for prices to rise much more quickly. Note how this had an effect yesterday with commodity stocks, up sharply across the board when President-elect Obama announced spending on infrastructure, and China last week talked about increased stimulus via the same. Spending helps increase prices and margins for companies in steel, copper and others. All this helps ease our fears about the future as we see a continued drop in volatility.

Bases vs. Bottoms, Breakouts vs. Fakeouts

Make no mistake, today's bear market is one of the worst of all time. Accounts have been obliterated nearly overnight and it will take much time for repair. The elusive bottom is something talked about but rarely captured in terms of space and time. However, we can pretty much be convinced by seeing bases built that at least a temporary bottom is in. The price action tells us that stocks won't go lower, but of course they may not go higher. Watching volume levels at these times will also tell us whether institutional participation is at hand. Breakouts are more likely to occur when the supply of stock is eliminated. Right now, too much overhead supply exists for an extended rise, but I would imagine the fakeouts will be fewer, but only time will tell.

Price Headley is the founder and chief analyst of BigTrends.com.