We have seen a lot of volatility in recent weeks. I remain of the belief that we have formed a major top, and the next leg (longer term) is likely down. That said, in the short term, it seems that there's a pretty good chance we bounce. One of my favorite market technicians, Chris Kimble, has been noting the extreme bearishness. The bond market is absolutely rejecting the likelihood of an economic recovery, in my opinion. That said, the equity markets love hope, and they sure hope for some QE3, despite the fact that QE1 and QE2 have done nothing to help the real economy. Looking at the chart, there is plenty of room to bounce before the bulls would have any cause for chartological excitement.
As noted in the chart above, 1220 has shown itself to be pretty strong support. So where could we rally to? 1160 or so is a downtrending line of resistance. If we can't get past 1160, that would bode pretty poorly for the near term performance of stocks, imho. A rally to 1210 or so gets us back to recent high. If we top out there, then we have formed something of achannel, and should consider the possibility that we'll be rangebound between 1120 and 1210 for little awhile. A rally to 1260 or so would get us back to the "critical support" that broke so precipitously a few weeks ago. I will look to get net short there, if given the opportunity.