It was a wild ride on Thursday as the S&P 500 (SPX) opened stronger, surrendered all of its gains at midday, then closed near the best levels of the session, says Jon Markman, editor of Strategic Advantage.

The benchmark index finished at 3,795, up about 1%.

Blame politicians for the volatility. Federal Reserve Chairman Jerome Powell was on Capitol Hill Thursday and lawmakers were hellbent on getting a soundbite about the impending recession. After the chairman finished fielding questions stocks resumed their rally.

The final gain puts the S&P 500 within easy striking distance of the first key resistance level at 3,810. A rally beyond that point might force bears to cover short positions all the way up to the recent downside gap at 3,900.

Many traders are now arguing that the bottom for the market is in place. I doubt that is true. There are simply not enough strong sectors for a sustained advance. No sector has charged into first place following the collapse of energy, though health care is heading in the right direction.

I expect that the bears will make a solid stand on any rally to 3,900 if that move occurs. In the interim, be ready to move back to new lows. Critical support for the index is 3,710.

SA TradeView: We did not enter a new trade Thursday. The ProShares UltraShort S&P 500 (SDS) closed at $50.29.…Place the following new order: Buy SDS at $48.70 lmt. If filled, set the target at $57.10 lmt gtc and set a stop at $45.20 stp.

The Upshot

The Dow (DJI) rose 0.6% to 30,677.36 and the Nasdaq Composite (IXIC) climbed 1.6% to 11,232.19.

Utilities and healthcare led the gainers while energy and materials were the steepest decliners.

Breadth favored advancers five-three, and there were 34 new highs vs 639 new lows. The leaders were FTI Consulting (FCN), and Sanderson Farms (SAFM). That’s better leadership than we’ve seen in a while, though that’s not saying much.

The US ten-year yield slumped 6.5 basis points to 3.1%. West Texas Intermediate crude oil futures dropped 2% to $104.07 per barrel. Don’t be shocked if oil sells for less than $70 as recession fears replace inflation fears.

On the second and last day of his testimony, Powell reiterated the Fed's commitment to bringing inflation under control. He said on Wednesday that a recession was "certainly a possibility" and that nothing was off the table in response to a question about the odds of a 100-basis-point hike. There seemed to be a "noticeable departure from earlier optimism indicating at least somewhat of a softish landing was still possible," Stifel said in a Thursday report, referring to yesterday's testimony.

In other economic news, the June flash reading of manufacturing conditions from S&P Global fell to 52.4 in June from 57 in May, compared with 56 expected in a survey compiled by Bloomberg. The decline follows reading from the New York and Philadelphia Federal Reserve banks that indicated outright contraction in the sector. US initial jobless claims fell to 229,000 during the week ended June 18 from 231,000 in the previous week. It compared with expectations for a drop to 226,000 in a survey compiled by Bloomberg.

In company news, Morgan Stanley lowered Caterpillar's (CAT) price target to $161 from $164 while maintaining its underweight stock rating. Shares of the construction equipment supplier dropped 4.9%, the worst performer on the Dow. Mosaic Company (MOS) reported higher revenue from potash and phosphates in May, compared with a year earlier, even with a decline in sales volumes. Shares of the firm sank 9.6%, the steepest decliner in the S&P 500.

There goes the AG rally!

Learn more about Jon Markman here...