Never a good thing to see complacency in anything we partake in during our lifetimes. It has a way of coming back to haunt us. Once we think there's only one outcome to things we get the lesson that there's another outcome sitting out there lurking and surprising us when we want no part of it. I mean, come on, things were so nice. Who needs this headache! When complacency hits the market you know there's trouble coming. We had a bull-bear spread coming in to this week at 43.9%. That is a very rare-reading indeed. You also know that we won't stay at those levels forever. There will have to come a time when we likely see levels back in the 20's again. So you have to ask yourself, how do we get there. How could we ever get back down to a spread with a 2 as the first number?

The answer is fear. Fear can come two ways, the not so nasty way and the very scary, very nasty way. The not so nasty way would be for the market to swing about up and down with a small down trend the dominant factor. That would slowly erode things from a sentiment perspective far more slowly, but it would still get the job done over time. The total correction can be as little as 5%. Then there's the really scary way, which includes multiple-down days of triple digits in a row. Some possibly over 200 points on the Dow. Possibly even a day where the Nasdaq loses as many as one hundred points. That'll get the attention of the complacent bulls. We can't know what will happen, but we do know that the 43.9% spread won't be around very long.

I'm sure, at least a few percent were shaved off the top from this week's poor-price action just about everywhere in this market. It's a start and will take quite some time to get things lower, but again, you have to start somewhere. Since we're now down over four-hundred Dow points off the top you can expect a little relief when we get the new readings next Wednesday for the action through today's close. The bull market is very much alive, but expect a tougher road for several weeks to come, if not somewhat longer.

You have noticed one thing different the past two days, if you've been paying attention. We are staying oversold, or close to oversold, for far longer periods of time. Longer than we have seen for over a year. The tide has turned. Upside sustainability will no longer be easy. At some point we will rally from oversold. It has to happen, but it's not likely to get overbought now for some time to come. Willing sellers will come in as indexes back test lost support areas.

Sentiment has us understanding that the bulls are all in. That makes it harder and harder to sustain upside moves. Only when we can get bears to race in with force can we expect easier rides up the positive slope. No bears equal no fuel. No one to cover shorts is not a good thing. With the market sitting at, or near, oversold on the major-index short-term charts tells us this is the way things are now for this market. The change of trend is upon us but again, don't expect down every day. There will be up days.

In order for the market to really get smoked the major indexes will have to lose their 50-day exponential moving averages on the daily charts. The S&P 500 has that level at 1764. That's the number the bears are focused on. It's the only number that matters to them. On the Nasdaq we're starting to see some erosion price wise from recent leaders. Google Inc. (GOOG), Priceline Inc. (PCLN), and Apple Inc. (AAPL) are starting to show weakening action. It's not solidified yet, but there is some hope for the bears when those leaders start to perform the way they have been the past week or two.

Taking out the 50's would allow the bears to press the bulls and force a bull squeeze. This would really knock the market down fast and hard. Lost 50's force the bulls to cover, but more importantly, allow the bears to gain confidence. That's what's absent for now. What this all means is the following. Be smart. Know the market has gotten tougher for the bulls, thus reigning it in here makes a lot of sense. No need for greed here if you're a bull. It doesn't mean that from time to time a long play can't be done, but keep it light and be appropriate. Some shorting can be done on failed moving average back tests. A day at a time here folks. Go slow!

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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