I have recently warned that some selling was close at hand as we had very overbought conditions on both the daily and weekly charts that simply need to be worked off over time. The rubber band can stretch only so far and then it has to break, especially when it occurs on multiple time frame charts such as those daily's and weekly's.

When the short term time frame charts get overbought on their oscillators you can weather the storm if the daily charts aren't that overbought. They unwind very fast. That is not the case with the daily charts as they work off their overbought conditions much more slowly. These daily index charts are now just making crosses down on their stochastics and RSIs. They will need some additional time before they will be at a buy point again. Some real patience will be necessary so be prepared for that please.

We had some very bad earnings last night from Alcoa (AA) and then add in a warning from Chevron Corp. (CVX) and we had the catalyst in place to snap that rubber band. The after hours futures fell and never recovered over night although they most definitely worsened as the morning wore on causing a nasty gap down at the open. A strong gap down that never looked back. A trend down day right up to the close although most of that trend down day was in the technology world.

The Dow closed well off its lows but the S&P 500 was barely so. The Nasdaq has been the most overbought and the has the highest beta thus it is no shock that once the excuse was given, they went down the hardest. They had the biggest gap down and closed lower than the open meaning it will have difficult sledding ahead for the next few weeks in all likelihood. A poor advance-decline line sealed the deal although it wasn't devastatingly bad. Just bad enough to say that a correction is under way.

Some red flags showed up today. Goldman Sachs (GS), which had lost its 50-day exponential moving average some months back and finally recovered it recently, lost that critical level again today. A second loss isn't very good news to say the least. In addition, we saw Baidu (BIDU) lose its 50-day further and further while Amazon.com (AMZN) is right on it. Google (GOOG) is also getting very close and Apple (AAPL) is close to losing its 20-day exponential moving average. If that goes, its 50's are on deck. Some big time leaders are not doing very well and this suggests that we may be going lower for some weeks to unwind all the froth currently in the market. This is not necessarily bad news as we have had very little fear to talk about and what better way to cerate fear than to smoke those market leaders everyone follows.

Today we didn't see the game of rotation being played such as we have for the past few months. The financials didn't come riding in on their white horses to save the carnage taking place in the worlds of technology and commodities. I like it to be honest because I really do want to see the fear ratchet up here. Whether I want it to or not, the market doesn't care, of course, and today we didn't see a repeat of the recent action where, if one key sector is getting crushed, another key sector saves the day. This suggests that more downside in the market is likely. When a trend stops you have to take notice. The overbought got so bad it seems the rotation game needs to stop for a while.

For now all we have is a pullback under way. Only when we lose all the daily index charts 50-day exponential moving averages can we start to think more bearishly. We're still well above across the board. 2213 Nasdaq and 1106 S&P 500 are the numbers to watch for. The Nasdaq also has strong gap support at the 2225 area. The bears have their work cut out for them. We do suggest taking it very slow and easy here as upside won't be easy at all but not every day will be lower. A struggle for the bulls for sure is upon us for a little bit. Respect it and we'll get through it with little to no damage.

Peace

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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