Today was fascinating. Truly fascinating, and certainly not boring. The market plunged early on as the European markets fell hard. We gapped down and continued to fall hard. After getting close to oversold on the short-term sixty-minute charts we noticed a small rally ensue into the FOMC at 2 PM Eastern Time. It stated that the economy hadn't quite gotten to a level where they'd feel good about slowly raising rates. The market absolutely exploded, with a twenty handle S&P 500 move up in a matter of minutes. The market looked ready to rock up, but something funny happened along the way. The market hit gaps, and the selling exploded back in taking the market right back down.

This is what occurs in a more bearish environment. Not a bear market. Not suggesting that. Just more of a bearish environment. Rally moves don't hold. When all was said and done the bulls couldn't feel real good about the overall action as the bears made a strong late day statement. Not a knockout statement, but a statement that said any run for the bulls is going to be extremely difficult. There are more and more willing sellers these days. Not enough to break us down yet, but enough to cause problems for the bulls. Not a pretty day for the bulls, but not a devastating day either. That said, enough to cause more angst and concern. A good day for the bears as they successfully fought off good Fed news when the Fed minutes came out.

The Dow has had three days with tails off 17,300. On August 7 it hit 17,289 only to close over a hundred points higher. On August 12 it hit down to 17,125 only to close many hundreds of points higher. Today, when it hit below 17,300, it blasted higher, and closed above, but not nearly up as strongly as the other two tests. The Dow is worth watching here since the lower P/E stocks live there including Apple Inc. (AAPL), which is flirting on the monthly charts with a breakdown below critical up trend line support. A forceful close below 112.00 on AAPL could possibly open the door to huge market selling across the board since AAPL is in just about every key index now. Dow closing below 17,300 and AAPL closing below 112.00, both with force, would be very bad news for the market bulls, so please keep those numbers in mind. AAPL also has negative divergences on the RSI on that monthly chart, so it really needs to be watched at the 112.00 level. Interesting times for both sides.

There is some really great news here for the bulls. Sentiment is spiraling more bearish and now occurring very rapidly. We've gone from nearly 46% on the bull-bear spread just a few months ago, down to 19.3% today, which covers action through last Friday's close. The bulls are down to 37.7%, which is well off the recent highs in the lower 60's. The bears slowly rising and they're up to 18.4%.
Nothing too good yet, but better than numbers in the 13% area. The market would really need to break 2040 on the S&P 500 hard before it ramps much higher, but the overall spread is improving quite dramatically. So there is a lot of good medicine happening here, even though the action doesn't feel very good for the bulls. The longer the market struggles, even if it doesn't break down, the better the numbers will get. Frustration is clearly getting to the bulls. They're becoming more emotional, and that's the best part. No more real complacency. The process is under way, and so far so very good. The unwinding of froth is happening before our eyes.

In the meantime, we continue to watch 2040 and 2134, with the bears a bit more in control for the short-term, but clearly nothing too amazing for them either.

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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