The market had a bad day today. Why? Because all the key indexes lost their 50-day exponential moving averages and that's bearish short term. The bulls will have to get busy in a hurry to get it back above. The longer it stays below the braver the bears will get and the lower the market will go, which also means the further away the 50's will get. That means the next rally may only back test those lost 50's only to follow that up with another strong move lower. Losing the 50-day exponential moving average with force is the key and today we got just that. The S&P 500 closed 15 points below. The Nasdaq closed 21 points below and the Dow closed 75 points below. Roughly half a percent or more. If the bears can get a strong gap down tomorrow they are really in business, but do remember that it's hard to keep a market oversold and that's what those key index shorts term charts are. RSI's 30 or below.

Now, it can stay oversold for a very long time, but that's not normal behavior. If the bulls rally a bit in the morning the bears need to make sure the averages don't capture back those lost 50's. The bulls will have a very difficult time taking those 50's back, but the bears need to stay on guard. You get the job done after failing so many times you want to be sure not to surrender that good work in the day or two after. This is, therefore, a very critical time from a technical perspective. The technical's will officially switch to bearish if the bears can protect the 50's over the coming 3-4 days. So today was a day for the bears. The bulls are in trouble here and need to reverse things now. It doesn't look too hopeful based on technical's, but we'll know for sure in the next couple of days.

Froth. There's that word that is clearly the enemy of the bulls. They are in trouble when it comes to greed. They have taken the bull-bear spread and made a joke out of it. Week after week at poor levels with several weeks in the plus-40 zone. Don't forget that those levels alone can cause a bear market. You don't need collapsing economies or rapidly rising rates when froth is this out of control. I'm not suggesting we're headed in to a bear market now, but you need to be aware of what these levels of froth can do and in fact, have done in the past. See 2000 for that wake-up call. It will take an amazing amount market declines in the coming weeks and months to get the bull-bear spread back to an acceptable level from which sustainable upside can occur. We need some very intense pessimism now for a long time to get us back to healthy sentiment levels. Are we about to get it? I really don't know until we back test lost 50's in time, and only if we head lower first to give those back tests some room. The story is not written.

When trying to understand where we may bounce from it's best not to think of a level in the market on any individual index. It's best to focus on the VIX when it's in an uptrend. The VIX has a tendency to print a black candle, or even turn a large gap up into a red candle when it's ready to fall, thus, allowing the market to rally. We have only full candles for now, thus, we must wait and be patient for it to flash its signal. After that it'll be interesting to see how it falls versus its oscillators in determining how far the market will rally. Don't guess. See the topping candle in the VIX and then respond. No guessing. Look folks, the market is not great here. The VIX is saying things can get a lot worse but we need to be ready to respond both long and short as things set up. We learn as we go. Nothing aggressive here either way. The market may be turning. Don't think too hard. See it and play it. Selling makes things look bad. It plays on your emotions. The VIX is showing that emotion. The selling may not be as negative as it looks, thus, we learn as we go. Only a lost back test of the 50's would make things bearish. We're not there yet. Get more bearish if and when we do get there. Not before.

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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