Since I wrote Friday's letter, we have had one single day of trading. That was today. So what great wisdom can I impart on you that's different from Friday. To be blunt, there is none other than to repeat what we already know to be true. We have two great forces at work against each other, and the market behaved in perfect step with that reality today. The Fed will continue to print seemingly forever, as he is very unhappy thus far with the economic recovery, if left to its own devices. He feels the need to throw endless dollars at the economy, while keeping short-term rates at zero. He doesn't see commodity inflation, so why not keep it going for now, until he does. Then it'll be Janet Yellen's problem anyway, and he can blame it on her. He's gone in January, so he will likely say little when he speaks Wednesday evening.

But, oh boy, don't let your guard down folks. Let's see what sentiment can bring when it gets too frothy and the market snaps under the weight of too many bulls and no more bears. We have two historical readings of the bull-bear spread being over 40%. In April of 2011, we had a reading of 41.6%, before the market crashed out to the tune of nearly 23%. In October of 2007, we had a spread of 42.6%, which took the market down to the tune of over 50%. Yes, that's OVER 50%. We are very close to either of those two numbers, but we have Fed protection, so how much we ultimately fall and when it begins is unclear. We'll get the new readings late tomorrow or early Wednesday morning. So yes, the risk is high. Just know that as a reality and adjust accordingly, but hang in there until we get a weekly engulfing candle on the S&P 500.

With so many sectors looking beautiful, such as the financial sector and the railroad sector, to name just a couple, it's hard to imagine the market just giving it up without a major fight. It will try to fight, but folks, you have to understand that there's only so far you can stretch this rubber band before it gives it up. So how do we deal with that? Well, first of all, you play with a far greater level of safety. You do that two ways. Not playing high beta froth stocks and avoiding the stocks with ridiculous P/E levels. Those are the ones that will take the largest hit when the selling does eventually hit this market. Lower P/E stocks and lower beta stocks will be the places folks go to hide while the market does its dirty deed.

There's a time and a place for everything. You can see by how we're currently positioned in this game. It's by what we think is the right thing to do. It doesn't mean you have to do the same thing. Play however you want, but understand what you're up against should you wake up one morning and the futures are annihilated. If you're not playing safely, you will take an unnecessary hit. Greed is always fun, but it has no place here. Not ever, in my opinion, but surely not now. So yes, many areas still look great with no sign of any topping weekly sticks. That's great, but that doesn't mean you should let your guard down. Be smart and play properly.

Good news is still good news and bad news is still bad news this earnings season. Stocks are getting rewarded and breaking out, and once they back test those breakouts they are moving higher again. That, too, should be the way you play the market for the short-term if not the long-term. Keep track of those stocks that were rewarded. Wait for them to slightly unwind, and then get after them to the long side. When good news starts to be treated poorly it's time to take cover, but that's not the case for the most part now. Keep your eye on the bigger picture, and find ways to keep in the game in a safe manner. Bigger picture, as long as 1730 holds the trend overall is higher. If that goes away the sentiment headache is upon us in full force.

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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