The stock markets are still riddled with anxiety, with traders nervously awaiting the next shoe to drop. Will Europe fracture? Does a global recession loom? But in an apprehensive environment where fears are legion, it's easy to lose the forest for the trees. If you can transcend the day-to-day newsflow slog for a broader perspective, the technicals of the US stock markets are actually quite bullish today.

Zooming way out, the stock markets have been in a mighty cyclical bull (within a secular bear) born out of the stock-panic carnage in March 2009. Between those fear-laden secondary lows and April 2011, the flagship S&P 500 stock index (SPX) soared 101.6% higher. But like all bull markets, this advance certainly wasn't smooth and linear. Healthy pullbacks and corrections periodically interrupted it.

These retreats are very important for ongoing bulls' longevity since they keep sentiment balanced. After a strong rally, there is way too much greed in the markets. If this enthusiasm turns into euphoria, it risks sucking in too much capital too soon and prematurely burning out the entire bull advance. So sharp retreats from time to time bleed off this greed. And balanced sentiment prolongs any bull's ultimate life.

The dividing line between pullbacks and corrections is 10%, with the latter exceeding it. While there have been quite a few sub-10% pullbacks in this bull, there have only been two full-blown corrections. The first happened back in the summer of 2010, a 16.0% retreat in the SPX over about 10 weeks. The second led to the intense anxiety currently plaguing the markets, a 19.4% selloff persisting for 22 weeks.

Fear and anxiety are the natural consequences of any major stock-market selloff. They are inevitable after a correction, and should be expected. The sole purpose of any mid-bull selloff is to rebalance sentiment, so greed is blasted away by fear. Thus the post-selloff bottoming process before the next upleg is characterized by endless trepidation. This is why young bull-market uplegs are said to "climb a wall of worry".

Thus in any fear-laden post-selloff environment, prudent speculators and investors should be looking for the next big rally. But instead of seeing an in-progress bottoming as contrarianism demands, most traders blindly follow the mainstream-herd mentality of expecting another big selloff. So rather than buying low in the bottoming, they end up selling low. And a bottoming is exactly what the SPX's latest technicals are showing.

Outside of 2008's crazy once-in-a-century stock panic, you'd be hard-pressed to find a more-volatile time in recent memory than the past 6 months. Just look at this wild chart! The numbers of big down days and big up days recently have been way higher than the SPX's usual probability distribution. But the net result of all this chaos is the higher lows and higher highs seen in this chart. A new upleg is being born!

This whole volatile mess started back in early August when the US Congress abdicated its responsibility to live within its means and failed to get a serious debt deal done. This broke the headline SPX below its critical consolidation-support level of 1270. A few days later, Obama's profligacy in running mind-bogglingly-large deficits forced Standard & Poor's to downgrade the United States of America for the first time ever. The next trading day, the SPX plummeted 6.7% in its worst down day since in the heart of 2008's panic!

But despite the extreme fear that Monday August 8th as reflected by the definitive VXO fear gauge slamming into its effective ceiling of 50, the SPX carved a super-important low. Closing at 1119, it consummated the second correction of this post-panic cyclical bull. At that point the SPX was down 17.9% over a 14-week span. It looked and felt like a garden-variety correction from multiple technical and sentimental perspectives.

Indeed the SPX rallied sharply out of those initial lows in early August, albeit in fits and starts. On three separate trading days over the subsequent couple weeks, the SPX bounced near 1125. This created the critical support line rendered above at that level. It's true that support and resistance are just arbitrary lines drawn on charts, they have no inherent power. But if widespread knowledge of certain levels leads traders as a herd to act a certain way when they are hit, the psychology of support and resistance can indeed move markets.

And since the SPX refused to fall materially below 1125 in August despite the extreme fear then, capital flowed back into the stock markets whenever it was hit. Conversely the top of this bottoming consolidation was carved soon after on the final trading day of August when the SPX closed at 1219. It had soared 8.9% from its USA-downgrade lows from several weeks earlier! Naturally technicians like round numbers for their support and resistance zones, so this was labeled 1225 resistance.

But despite being near post-correction highs, anxiety still ran excessive. The pessimistic rhetoric calling for a new bear market awakening in August despite the extreme fear was overwhelming. So in early September when that month's most-important economic report was released, monthly US jobs, the markets were vulnerable. Instead of the 25k to 50k jobs created in August expected by economists, the actual came in at zero. The markets crumbled, propelled by scary new US-recession fears.

Then later in September, the US Federal Reserve failed to launch a third round of quantitative easing as many traders hoped it would. The stock markets, commodities, and commodities stocks sold off sharply on the news there would be less monetary inflation than expected. A preliminary economic report out of China also suggested its own economy was slowing, leading to relentless selling. By the end of September, the SPX closed at 1131 which was just above its bottoming consolidation's well-established 1125 support.

Without fail whenever stock markets are weak, economists fall all over themselves to predict a new recession. Economists never seem to want to acknowledge psychology even though it is the primary driver of the financial markets. So instead of any stock-market selloff simply being a healthy correction driven by unbalanced sentiment, they choose to interpret it as being a fundamental prediction. So recession fears abounded heading into October, as weak stock markets were thought to imply economic contraction.

And professional money managers typically report their results quarterly. And 2011's third quarter was just rotten thanks to the timing of this correction. The SPX plunged 14.3% in Q3! So funds had to get ready for redemptions in early Q4 as their statements went out, by selling to raise cash. This on top of the rampant recession fears cracked the months-old 1125 support and saw the SPX close at 1099 on the first trading day of October. The total correction was then down 19.4%, perilously close to crossing the 20% new-bear-market threshold.

The bears crowed about this, reveling in the extreme fear as the VXO fear gauge again approached its effective ceiling. But the stock markets were wildly oversold, as you'll see shortly in the next chart. And the multi-month selloff leading into that secondary low looked nothing like what is seen early in new bears. Bear-market selling starts off very gradually, as bears develop stealthily so they don't frighten away too many traders too soon. The recent selling signature was pure bull-market correction, not new bear.

The extreme fear couldn't persist, and the only thing that would erase it and rebalance sentiment was a massive rally. I told our subscribers one was overdue right at those irrational lows, and indeed one came to pass. The SPX started powering higher in a big way in early October, accelerating as the newest jobs report actually revised away that zero number that sparked the recession fears. The Labor Department claimed the zero jobs growth in August that crushed the SPX was actually +57k, above the high end of the original expectations!

So the whole US-recession scare manufactured by excitable economists in September was based on erroneous data later revised away. The SPX just skyrocketed in October, soaring 16.9% in an enormous rally over less than 4 weeks. October 2011, born in extreme fear and a recession craze, ended up being the SPX's best month since 1991 and best October since 1982's! It pays big to be brave when others are afraid, to walk the contrarian walk and buy low when few others want to.

The next big milestone for the obviously-recovering stock markets was to break back above the S&P 500's 200-day moving average. 200dmas are critical on multiple fronts. They are where bull-market corrections tend to retreat to most of the time, and bear-market rallies tend to die at. So the ongoing titanic struggle around the SPX's 200dma is supremely important. Once the SPX forges decisively above it, even the bears will have little choice but to acknowledge a new bull-market upleg is underway.

In late October and early November, the SPX made a couple valiant attempts at its 200dma but was repelled. But this was actually typical, 200dmas are tough to claw back over initially if a correction drags prices materially below them. Each time the SPX fell back though, it bounced near its old 1225 resistance line. Resistance was becoming support, a very bullish omen. The SPX was basing high in a new breakout consolidation preparing for its next assault on its crucial 200dma.

But the breakout didn't come as soon as the bulls hoped. Festering Europe fears, this time in the guise of global bond investors selling European sovereign debt universally, again weighed on the stock markets. Yields all over Europe, including in the strong core countries, were being driven up to levels that caused concern. Even though some of these yields were so high they were clearly unsustainable (meaning it was a temporary anomaly), it ignited substantial selling pressure in the US stock markets.

Interestingly the lion's share of this recent November selloff that spooked still-apprehensive traders happened after 1225 failed as support. The technicians had drummed the importance of this level into the minds of the thundering herd to such a thorough degree that once it failed selling instantly accelerated considerably. But as we've seen countless times in the past couple years, the Europe-implosion fears were yet again overdone. The European and world economies keep on marching on.

Then after slumping alarmingly in that throwaway low-volume Thanksgiving-holiday week, the SPX again started rallying sharply as traders returned. It soon blasted back above that key 1225 line on encouraging news out of Europe, and soon after that launched another 200dma attempt. Once again this flagship stock index was back up in its breakout consolidation, basing high before this young upleg's next big surge.

Now if you dismiss this analysis because it glosses over countless developments in Europe, you're mistaken. In both our weekly and monthly subscription newsletters, I've delved deeply into every major European development that affected the SPX and analyzed its implications. In fact, I've been forced to write so much detail about Europe since summer (because it is what is moving the markets) that some of our subscribers are getting tired of it. So this bullish-stock-technicals analysis fully considers Europe.

Most traders see the SPX's wild volatility in recent months within the context of the old bottoming-consolidation trend, running from that 1125 support to 1225 resistance. But thanks to that ultra-decisive late-November low, a new trend is emerging. I highlighted it in red above. This is a nascent uptrend, a textbook-perfect example of what a young upleg looks like! The only time its ascending support was pierced was briefly in late September and early October during that quarter-end anomaly.

With the exception of that obviously short-lived event, the SPX has been repeatedly carving higher lows and higher highs since way back in early August! These my friends are bullish technicals, there is simply no way around it. During a brutal 4-month span psychologically where traders and the financial media were utterly convinced the world as we know it was ending, across multiple extreme fear spikes, the flagship US stock index has been gradually gaining ground!

I was going to wrap up this essay here, but the new nascent-uptrend support line looked strangely familiar. So I checked it against a longer-term chart of this entire cyclical bull. And lo and behold, look what emerged! The same support line formed since late August despite runaway anxiety is actually the uptrend support of this entire cyclical bull. This helps explain why this particular support has held.

Formed during the summer of 2010 in this cyclical bull's first correction, this support line held solid throughout this bull's recent second correction with the exception of that short-lived quarter-end anomaly. So even from a longer-term bull-wide perspective, the SPX's technicals remain very bullish. Support approaches after major corrections mark the births of major new uplegs, not the starts of death spirals lower.

This chart is also super-bullish from a sentiment perspective. The red line is the Relative SPX, based on my simple and very profitable Relativity Trading system. It is simply the blue SPX line divided by its black 200dma line. The resulting perfectly-comparable multiple, charted over time, tends to form a horizontal trading range. Over the past 5 years or so, the SPX tended to trade between 0.95x its 200dma on the low side to 1.10x on the high side.

When the stock markets are low in this relative range, they are oversold which is the ideal time to buy low. And the sharp correction in early August, as well as that single-day secondary low in early October, drove the SPX to its most-oversold levels relative to its 200dma since early 2009 as it emerged out of the stock panic! Do you wish you had aggressively bought stocks in March 2009 as we recommended then? They were as oversold recently as they were back then, and remain low in their relative range even today.

The recent months' higher lows and higher highs, multi-year bull support holding strong, and the flagship stock index still cheap relative to its 200dma baseline is a very bullish omen. Despite overwhelming anxiety, and a daily drumbeat of Europe-implosion fears eroding confidence, the US stock markets are still marching higher on balance. And if they can perform so well when everyone is scared to death, imagine how they are going to surge when the incessant Europe fears abate?

And they will. Just like our government in Washington, the European governments are way too big and bloated and living far beyond their means. The global financial markets are forcing them, through the mechanism of higher borrowing costs, to get their acts together. Europe's underlying economy continues to expand, as Europeans still get up every day to go to work and have no choice but to continue buying things to provide for their families. Smaller governments over there would actually be a huge boon.

And even if Europe doesn't remedy its profligacy soon, American and Asian speculators and investors will care less and less. The fear factor of any scary stimulus gradually decays with time and familiarity. If a few bees land on your arm, it will probably frighten you. But if you become a hobby beekeeper and spend years around the bees, they won't scare you at all. The more we all hear about Europe, the more accustomed we get to its dysfunctionality, the less fear it is going to ignite in the global stock markets.

At Zeal we've been hardcore students of the markets our entire lives. We are constantly considering daily newsflow within broader context to maintain that aloof, calm perspective critical to successful trading. And the track record of our proven contrarian approach speaks for itself. Since 2001, all 591 stock trades recommended in our subscription newsletters have averaged annualized realized gains of +51%! This is very impressive within a gigantic sideways-grinding secular bear market.

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The bottom line is stock technicals today are bullish. Despite incredible Europe-driven anxiety plaguing the markets in recent months, the flagship S&P 500 is still carving higher lows and higher highs. A young new upleg is forming before our very eyes on the charts, yet traders who lack perspective don't realize it. Those mired down in day-to-day volatility and newsflow are missing the forest for the trees.

These bullish technicals coupled with continuing oversold conditions have created great opportunities. Many sectors, including our long-time-favorite commodities stocks, have been irrationally beaten down to unsustainable lows. But as the SPX continues bulling its way higher and breaks back above its 200-day moving average, these oversold sectors will probably see major capital inflows catapulting them higher.