The battle zone levels have been established. The Nasdaq at 4900 or the midpoint of the double top and 2030 to 2050 on the S&P 500 or the two-hundred day, exponential moving average and downtrend line. Getting over the last moving average is key for without it we cannot test that key, downtrend line. So for the short-term we focus on 2030 on the S&P 500. When markets get close to major breakout or breakdown levels, you see it get a bit more volatile as each side is trying harder to get what they want or need.

These levels are important for both sides, of course, but the bears feel the need to act harder simply because they know that if these levels are taken out by the bulls, they will have to cover, and potentially send the market back to the old highs. The bears are used to getting taken out, so they are in a bit of panic here as they know the pain they'll be feeling if the bulls are successful. Short interest is extremely high, and they know this as well, thus, they will fight very hard here, and today they won out.

The bulls have tried a few times over the past several days, but, thus far, the bears have been able to keep the bulls from succeeding. We got over the two key levels intraday, but intraday does not a breakout make. You need it on a closing level, and you need with some force. We had a 2033 close on the S&P 500, but that wasn't a verification of a new leg higher. Just not enough force over the key, 2030 level. So now we watch to see where the selling stops. We will watch for a potential bottoming stick above 2000 support. The market remains risky at best, with many stocks and sectors taking big hits every day even as the market trends higher. There's always a sector out there or some leading stocks taking big hits. You need to be both careful, and la bit lucky, too, in order to avoid the carnage. Today was yet another failed attempt by the bulls, but that doesn't mean the story is written bigger picture. We were overbought, so there's nothing wrong with failing short-term, and allowing important oscillators to unwind on all the key timeframe charts. It's healthier that way.

The earnings season so far has been a disaster for the most part. There's always some good ones mixed in, but the number of companies reporting missed earnings and revenues is sky rocketing higher unfortunately. The global economies taking their effect on things. Not only are they missing numbers for this past quarter, but they are also guiding lower for the future, and that's the right mix for stronger stock prices. Some companies are throwing in the towel, which is actually smart for the future. But the near-term can be really bad. This makes holding stocks into earnings even more risky than usual, and they're always a risky bet, even in the best of bull market conditions.

The one thing we don't know is whether throwing in the towel may not be enough for if the economic conditions here at home and abroad continue to weaken at their current pace, things could be much worse than anyone believes possible at this time. We are so close to recession, based on our most recent manufacturing reports, that it's quite possible things will get worse than expected. We can hope that won't be the case, but that's very unclear for the moment. As far as this season's numbers are concerned, they're clearly on the decline and many stocks are paying for that. So please be very careful how you proceed. You need to know who's reporting so you're not found guilty by association.

Let me again remind you that bull markets usually don't end with a V-bottom down. It can happen in the worst case scenarios, but it's not a common event. You need months, usually many months, for the process to play out with possible higher highs than we've already seen before the final top is put in. We'll know more if that occurs. I'll be looking for distribution volume on selling at tops. The volume on the way up off the recent lows has been consistent with a topping pattern as it has been quite low, meaning retail only. That said, we need to see confirmation with heavier volume off tops on future selling episodes.

This process is difficult on you emotionally, so be aware of the potential headaches to come. It takes a lot longer to top than most think possible or would desire. For now, I still think over time it's possible to make new highs before this bull officially sounds the final bell.

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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