AS September’s surge fades into a fond memory, the question for the US stock market is: Now what?

The market shook off the summer doldrums last month, breaking out of a stubborn trading range and giving investors the second-best September on record with a gain of 8.8 per cent on the S&P 500. It also racked up its best quarter in a year.

The strength of that momentum will be tested this week by a round of economic data, including the much-watched nonfarm payrolls report, as well as the start of third-quarter earnings season. The S&P has also been bumping up against a technical resistance level that could spark further gains if the index breaks through it.

Trading has been in a tight range the past week as the quarter wound down and the muted action could continue in the lead up to the employment report on Friday.

“People are still exhibiting a lot of fear in their investment decisions, with so much money flowing into bond funds and Treasuries, that any uptick in economic data could catch investors off guard,” said Michael O'Rourke, chief market strategist at BTIG LLC in New York.

“That should help fuel a nice fourth-quarter rally in equities.”

September nonfarm payrolls, due on Friday, are forecast to remain unchanged after a loss of 54,000 jobs in August, according to a poll of economists. However, the forecast range is wide, with a gain of 106,000 jobs on the upside and a loss of 75,000 jobs on the downside.

As the bulls and bears keep fighting over the stock market’s direction, technical indicators have become more widely scrutinised. The S&P 500 has been bouncing between the 1,140 and 1,150 levels, but has fallen back from the top end of that range in the past six sessions.

While analysts have attributed some of September’s move to “performance chasing”, where gains beget more gains, O’Rourke thinks the real action might not happen until the fourth quarter.

“I view it more as a lot of people were sitting out the volatility, waiting for a trend to emerge,” he said.