Editor's Note: The following article was written by Raymond James Chief Investment Strategist Jeff Saut. It has been reproduced with permission for the benefit of the Minyanville community.

In Making a Case for the Bulls, I noted that there have been 5 instances when the S&P 500 futures slid by 2% (or more) on back-to-back days, then gapped lower by 1%+ the following session. On every one of those occasions, the S&P 500 (SPX) was at, or within 1 day of beginning, a decent rally.

Furthermore, last November, I opined that the November 20, 2008 price low on the DJIA was 34% below its 200-day moving average, and consequently very oversold. According to Susan Berge, of the Berge Report, that reading was greater than the momentum low occurring in October 1974 of 27%, as well as the 24% reading during the 1987 crash.

Even during the recent downside re-test of those November’s lows, the differential was still a massive 25%. Subsequently, I advised buying the exchange-traded fund (ETF) of your choice, which in my case was the recommendation of the ProShares Ultra S&P 500 (SSO), which is “geared” 2-to-1 on the upside. I further suggested that more timid types might want to consider hedging these positions to minimize the downside.

Accordingly, the dutiful Dow sprinted 141 points in Tuesday’s session, but gave back most of those gains on Wednesday’s wilt (-121). Therefore, if my upside rally “call” was going to play, the equity markets would need to shake off Thursday’s worse-than-expected employment claims number, as well as the anticipated worse-than-estimated employment numbers on Friday.

Bingo. The late-week numbers were much worse than expected, yet the DJIA shook them off and rallied. How far the rally will carry is anyone’s guess, for, while I’m bullish on a short-term basis, it would take a closing price above 8375 on the DJIA to turn me merely neutral on an intermediate-term basis.

However, if the DJIA (8280.59) can close above its January 6, 2009 closing high of 9015.10, with a like close by the D-J Transportation Average (DJTA) (3203.70) above its January 6 closing high of 3717.26, it would be a Dow Theory buy signal -- according to my interpretation of Dow Theory -- and should be viewed as a pretty bullish occurrence.

Moreover, as I’ve stated in previous articles, so far what we’ve seen is a downside non-confirmation, with the DJTA breaking below its November 2008 low without a similar breakdown by the DJIA; and, you should read that bullishly.

Meanwhile, there was an interesting rotation last week, with the Commodity Research Bureau Index up, the Dollar Index down, bond prices down (read: higher interest rates), and Dr. Copper up nearly 11%. This action, if it continues, suggests the potential for the return of inflation and the potential for a stronger economy. If so, in addition to my recommendation on gold, participants might want to consider investments in platinum.