On Friday, European sovereign debt issues drove stocks lower again as Fitch dropped the ratings ofSpainandItaly. A slightly disappointing jobs report may have also contributed to the overall malaise that halted a three-day winning streak of the major indices.

The financial press on Tuesday declared a “bear market” when the S&P 500 made an intraday low of 21.6%. But since the signals of a bear market and bull market were defined by Charles Dow, I prefer to go with his method since it has historical predictive value.

When the Dow industrials and transportation averages “confirmed” by breaking to new lows on Aug. 4 at 11,383 (industrials) and 4,712 on the (transports), an official Dow bear market signal was triggered. Since 1940, bear markets have averaged a 32% decline with a median 28.8% drop, according to Bespoke Investment Group.

Despite Tuesday’s impressive reversal, the burden of proof rests on the bulls and the week ended with the following facts against them:

1. The S&P 500 turned down from its 20-day moving average at 1,163 after a midday penetration.

2. The S&P 500 failed to even reach the 50-day moving average.

3. The resistance line at 1,171 held.

4. The midpoint at 1,170 held.

The only way for the bulls to turn the S&P 500 back up is to break above each of these resistance numbers with convincing volume and breadth.

Instead of breaking higher, the Dow industrials appear to be forming a new bear channel with three connecting lower highs and two lower lows. A turn down from Friday’s high at 11,233 would be overwhelming evidence that new lows will occur.

But until prices head lower, the bulls still have a short-term case for higher prices:

1. Q3 and Q4 earnings look positive even with a significant “lowering of the bar” by some analysts. (Find out how you can use this to your advantage.)

2. Friday’s employment numbers slightly exceeded expectations.

3. European bankers and politicians are finally admitting to serious economic problems and appear willing to address them “head on.”

4. Technically there are a number of internal buy signals from our indicators and a number of divergences on the charts.

Conclusion: The bull may be munching heavenly clover but he still has a chance to make a near-term showing before Halloween. We should know very soon the outcome of this immediate battle between bull and bear.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.