Barring any late-day drama, Friday is shaping up to be a good proxy for the week: volatile, but with an upward bias.

The week provided yet another reminder of how negative sentiment continues to dominate. As you may recall, the market fell hard last Friday and there were a lot of people predicting stocks would suffer further this week, if not outright crash on Monday; or that, certainly, the rally had breathed its last.

From a contrarian perspective, this prevailing negativity is a bullish sign, as Wells Capital's Jim Paulsen told Tech Ticker.

As Henry and I discuss in the accompanying video, the stock market is now overvalued again after having become undervalued at the March lows, which may keep the Dow tethered near the 10,000 mark. But many stocks were priced last spring as if their future earnings would be somewhere between zero and nada...

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The unemployment rate rose to 10.2%, higher than expected and the highest rate since 1983. The labor force shrank by 31,000 which means the unemployment rate did not spike because of a surge of workers reentering the pool, as often occurs near turning points.

Non-farm payrolls fell by 190,000, which was more than the consensus estimate of 175,000. The higher-than-expected decline was somewhat offset by revisions of 91,000 for the prior two months and the fact the sub-200,000 decline continues the trend of smaller monthly declines.

The average hourly work week stayed at its lowest level since 1964 and the average length of time people are unemployed rose to 26.9 weeks from 26.2 in Sept and 22.5 back in May, according to Peter Boockvar of Miller Tabak.

Friday's report puts several of this week's big events into sharp relief...

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Not so fast, says Robert Prechter, president of Elliott Wave International and author of Conquer the Crash.

"Everybody who's saying ‘buy stocks' today or ‘buy real estate' is, I think, setting up people to get really hurt," says Prechter, who believes the bear market rally is reaching a major top.

"We had a great opportunity at [S&P] 667 - that was the big opportunity," says Prechter, who did make a bullish call last February. "The market is up 60% [from the March lows]. There's no way the S&P is going up 60% from here."

Prechter's advice for most investors, as described in the recently released second edition of his book, is fairly simple:

Play it Safe: Keep as much of your assets as possible in cash and cash equivalents, Prechter recommends, stressing not all money market funds and bank CDs are created equal -- or equally safe. (Prechter also advocates exposure to gold but isn't as bullish on it today as he was in 2002, as discussed here.)

Patience Is a Virtue: "Sit back, relax. Be as safe as you can [and] in safe institutions," he says. "There's a great buying opportunity coming up around 2014, 2016."

Return Of Capital Is Key: "Be very careful," he says. "Don't lose the money you have saved in the markets that are likely to come down in 2010 a long way."

From Prechter's perspective, "there's no negative to getting safe."...

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Stocks and gold rallied sharply Thursday, moving in opposition to the dollar as is so often the case these days.

The inverse correlation between financial assets and the dollar won't change but the trend is about to reverse in a major way, according to Robert Prechter, president of Elliott Wave International and author of Conquer the Crash.

"I think stocks are topping out, commodities are topping out and the dollar is making a bottom," says Prechter, who calls the dollar "one of the most despised" assets in the world.

Ever the contrarian, Prechter cited the heavy bearish sentiment on the dollar when he made similar predictions here in August. Since then, the Dollar Index has made new lows but the dollar has shown intermittent signs of life; in addition, Nouriel Roubini, Martin Wolf and others have made similar forecasts about the potential for a dollar rally.

In the accompanying clip, Prechter also makes the seemingly counterintuitive argument that the dollar will rally because there's so much debt...

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But even Hindery, a former advisor to President Obama and John Edwards' senior economic policy advisor, can't deny the Democrats have stumbled.

"The lesson is simple: It's the economy, stupid," Hindery says. "Healthcare reform is an important issue...but the priority was misguided. I'm a strong advocate of universal healthcare but would have put it behind employment."

The issue is not so much the Obama administration hasn't created jobs but unemployed Americans "do expect the appearance is every effort is being made to reemploy them," he says. "I think we got away from that perception [due to] the overemphasis on healthcare."

As a result of these misplaced priorities, Hindery says the Democrats are...

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Fast-forward six months and Mortimer's advice looks prescient. So what's his current market view?

"A correction here of 5% or 10% as the markets digest the huge gains off the March lows would not surprise me," Mortimer says. "But I'm still in the camp we still have more to run and I would use that weakness to begin purchasing if I'm in cash, or add to positions."

Mortimer acknowledges the market is not as attractively valued as at the March lows and that "the easy money has been made."

But the market has "discounted a lot of bad news" and bears are "overstaying their welcome," he continues. Too many investors are...

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Picking up where the end of October left off, November started with a session that epitomizes volatility. After rallying early Monday to as high as 9,858.59, the Dow subsequently sold off and hit negative territory in the early afternoon before rebounding again to close up 0.8% to 9789.

Other major averages followed a similar path with the S&P closing up 0.6% at 1043 after trading as high as 1052 and as low as 1,029, while the Nasdaq gained 0.2% to 2049 after trading in a range between 2024 and 2069.5.

All of this noise is signifying something, according to Diane Garnick, investment strategist at Invesco, which has over $400 billion of assets under management.

"What we're seeing now is a lot of people have become much more concerned in the short-term about the market," Garnick said, citing the following:

• After a 60% rally off the March lows, the market has priced in a lot of the good news that's currently hitting the tape, be it earnings or macroeconomic data, Garnick says. Now, the focus is turning to uncertainty about the outlook for the second half of 2010.
• The economy's apparent recovery is feeding concerns about inflation. Garnick doesn't expect any dramatic statements or change of bias from the Fed at this week's policy meeting but anticipation of the confab is creating anxiety in some circles.
• Despite the positive headline numbers -- including Monday's reports on ISM Manufacturing, pending home sales and construction spending -- the U.S. consumer remains in a fragile state, says Garnick, who expects the unemployment rate to hit the psychologically important 10% level when October's figures are reported Friday.

In addition...

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As Wells Capital's Jim Paulsen might say, the very fact so many people were worried about a possible crash Monday is a sign of the prevailing bearish sentiment. The market will continue to climb this proverbial "wall of worry," say bulls like Paulsen.

That may well prove true but the past few weeks have reintroduced a level of volatility largely absent since the July lows. Clearly, the tenor of the market has changed from "one-way bet" to one in which people are questioning the rally's staying power, for a variety of reasons...

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That's very bullish from a contrarian standpoint, and Paulsen believes we are "very early" in the recovery for both the economy and the stock market.

"There will come a time when the recovery gets more mature and you're going to convert bears to bulls and we'll get buyers that will take this market still higher," he says.

How much higher?...

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A day after posting the best gains since mid-July, the Dow fell 2.5% to 9713 while the S&P 500 shed 2.8% and the Nasdaq declined 2.5%. The losses left the Dow essentially flat for the month wile the S&P and Nasdaq snapped their streaks of monthly gains at seven. Commodities also tumbled while the dollar and Treasuries rose in a flight to safety.

The declines in the past week have done some technical damage to the major averages: the S&P closed below a "big confluence of support" at 1045, which is its 55-day moving average and major trendline since the March lows, observed Ashraf Laidi of CMC Markets. That's "not a small deal" and leaves 980 as the next major support for the index.

A number of factors were cited for the decline, including a drop in personal spending but that was in-line with expectations, as was the decline in the University of Michigan Consumer Sentiment Index.

If anything precipitated the selling, it was renewed concerns about the financial sector, which has been at the epicenter of the market's movements since late 2007, for good or bad. Today, the newsflow was titled toward the bad...

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