Friday's low in the S&P 500 at 741.02 tested the monthly trendline going back to October 1987, after breaking the October 2002 low at 768.60. The RSI reading of a "healthy" oversold reading currently at 15.1 had not been this far beneath the 25% oversold demarcation line since the October 1974 reading of 13.3. At 2:30 pm Eastern, with the SPX at 754.17, I noted to our subscribers that the 13-month vicious bear market has created conditions similar to the most acutely bullish readings in the past 35 years -- creating a potentially explosive technical setup for a recovery rally phase in the SPX.

Well, we know what happened in the final hour, with the SPX closing above 800 -- and the S&P 500 Depository Receipts (AMEX: SPY), which our ETF-focused subscribers trade, rising from the session low of 74.34 to close at 79.52. This could be the signal that, at the very least, the most recent downleg from the November 4 is complete and that the recovery rally has commenced. The real test will come if and when futures climb to confront critical resistance at 830-840.

For the time being, though, my near-term work indicates the equity indices have transcended from "sell the rallies" to "buy the pullbacks."