Stocks in the U.S. soared on Friday despite weak jobless data, as market players pushed equity prices higher on hopes of the government’s economic stimulus package and a possible bank-relief package.

The Dow Jones Industrial Average jumped 217.5 points (2.7%) to 8280.59, and the S&P 500 added 22.73 points (2.7%) to 868.58 and the Nasdaq traded up 45.47 points (2.9%) at 1591.71. For the week, the Dow rose 3.5%, the S&P tacked on 3.5% and the Nasdaq climbed 7.8%.

Leading the big movers on the day were the money center banks such as Bank of America (BAC), which soared 26%, Wells Fargo (WFC), which rose 17%, JP Morgan Chase (JPM), which advanced 12% and Citigroup (C), which added 10%.

The banking sector was pushed higher as traders positioned for the Monday release of Treasury Secretary Timothy Geithner plans to rescue the troubled banks and hopefully restore the credit markets. Investors are looking forward to hearing the details of Geithner’s plan for a “bad bank” concept that would guarantee the toxic assets and remove them from the balance sheets of the failing banks.

The “bad bank” plan and the stimulus package will most likely continue to make headlines throughout the rest of the week and both will be the center of discussion among Wall Street pundits. As the details of both plans leak out it will most likely add to the volatility in the entire market especially in the financial sector.

Considering the possibility of increased volatility and uncertainty, how should you play it?

One way to play the market this week is to focus on an area that nobody is really talking about -- and technically might be setting up for higher prices. One such area: The Russell 2000 (small-cap stock index), which on Friday surged 15.62 points (3.43%) to 470.70.

Looking at the chart below, you can see how the Russell 2000 is starting to trade above the 50-day moving average of 466.58 and has found sound support around the 430 level. The index is also forming a bullish uptrend channel and looks poised to trade back to previous resistance at 519.

So let’s look at a few small cap stocks that technically could be setting up for higher prices.

1. Palm

Palm (PALM) offers the Treo and Centro smartphones, handheld computers and accessories through a network of wireless carriers, as well as retail and business outlets worldwide. Recently, the company announced plans to launch a new phone, the Palm pre, in the first half of 2009. Since that announcement the stock has soared around 170%, however the stock could be setting up to soar even higher.

Looking at the chart, you can see that shares of PALM are approaching some previous resistance at $8.94 a share and volume continues to be strong. On Friday, over 8.8 million shares traded hands, versus the average daily volume of 6.9 million shares. If PALM can crack through previous resistance, the stock could be set to soar significantly higher.

It’s also worth noting that a whopping 45% of the tradable float is sold short as of January. A major short squeeze could be in the cards for PALM if the stock can continue to display bullish price trends.

2. Eagle Bulk Shipping

Eagle Bulk Shipping (EGLE) is primarily engaged in the ocean transportation of a range of major and minor bulk cargoes, including iron ore, coal, grain, cement and fertilizer, along worldwide shipping routes. Looking at the chart, you can see that shares of EGLE are approaching some previous resistance at around $8.70 a share. As the stock moves towards this resistance level, the volume is extremely heavy. On Feb. 4 volume was 4.8 million shares and on Feb. 5 it was 3.8 million, versus the average daily volume of 2 million shares. If EGLE can trade through $8.70 a share it could head much higher.

This stock also has a very high short interest at over 11% as of January. The bears on EGLE could be sent scrambling if the bullish patterns on the chart continue. You might also want to keep an eye on the Baltic Dry Index (BDI) and on daily rates for Cape-sizes, which are the largest vessels. If these two key shipping indicators continue to move up, then EGLE might follow.

3. GT Solar International

GT Solar International (SOLR) is a provider of manufacturing equipment and turnkey manufacturing solutions to the photovoltaic industry. Looking at the chart, you can see that shares of SOLR are coming up on some previous resistance at around $5.90 a share as volume has made some huge spikes.

Volume within the past three trading days has been within a range of 2.8 million to 1.3 million, versus the average daily volume of 740,000 shares. If the stock can break above previous resistance, it could soar to much higher prices.

Its worth nothing that SOLR is well off its 52-week high of $14.45 a share, so bargain hunters could be moving into the stock. Shares trade at a P/E of 7 and at a forward P/E of 6.7, versus the industry average P/E of 13.87.

4. TeleCommunications Systems

TeleCommunications Systems (TSYS) engages in the development and application of wireless data communications technology in the United States and internationally. On Feb. 7, the company reported profits surged by 53% to $58 million for 2008, versus a loss of $1.3 million in 2007. Looking at this chart, you can see that shares of TSYS look poised to breakout above previous resistance at $8.90 a share.

You can also see how the stock has been in a beautiful uptrend pattern since it hit a 52-week low of $2.71 a share back in March 2008. If TSYS can crack through previous resistance, it would mark a new 52-week high and the stock could be signaling its set to head much higher.

To learn about a few more small caps that look compelling right now, visit the Charts of the Week portfolio.

Also, if you want to improve your own technical stock-picking skills, you can share ideas and pick up some tips on Stockpickr’s technical-analysis forum.

Posted on Feb. 9, 2009