Often times, when a market has had a rather large move up or down, it will need time to consolidate the move. To digest, it if you will. The market has made an enormous move higher since early February. A two-month plus move higher that was almost literally straight up. It is quite possible we have simply entered the lateral handle or consolidation phase that will need to be played delicately. A handle, once established, that can be played on weakness near the bottom. You go more to cash near the top of the range.

Given we're in a confirmed bull market, it is not likely that this just rolls over and craters lower. The bull market is not going to end that easily, even though the bears would like to think this is possible, it's not likely given how much we've already moved up.

Here's the thing about ranges. They're very boring if played inappropriately. What do I mean by that? It means that if you play too much you'll get burned because all handles are VERY emotional. Up-and-down and up-and-down, thus lots of shaking out goes on leaving traders very frustrated, which begets more bad trades out of anger.

However, if played right, which means slowly, you can do well. Buying weakness is the way to go as you get in to stocks that have recycled back down with unwound oscillators. Never buy strength in a lateral consolidation. Only weakness, and if you don't overdo your stay you'll be fine. Be prepared for this type of market, would be my best guess for some time to come. Nothing bad about lateral markets as long as you exercise appropriateness.

The market began the day with a move higher as the short-term charts got very oversold from yesterday's huge move lower. The Dow was down over 213 and the Nasdaq down 51. We got the move up early in the day and got right to the 20-day exponential moving average on the S&P 500 from underneath at 1183. As the day progressed, the market made multiple attempts to get back above this lost 20-day moving average but failed. Nothing terrible in terms of the overall action as the S&P 500 closed only two points below while the Nasdaq closed a few points above this critical support area.

We did print an inside off the down trend, meaning it wouldn't shock me if we see further weakness tomorrow, although, keep in mind that bull market have the tendency to fool the masses. That said, it was an inside at the lower end of yesterday's massive red candle so we shouldn't be shocked if we see more selling tomorrow. Overall, not a bad day for the bulls, but the failure to get back above the 20-day exponential moving average on the S&P 500 should keep the bullish enthusiasm down.

One great thing about lateral consolidations is what it does to sentiment. We ended last week with 36% spread more bulls to bears. 54% bulls and 18% bears for that 36% number. Not a good number for the bulls. You want to see it below 35% at all times thus the red flag is up. The selling over the past few days would make me think that we're already back below that 35% threshold. Remember that sentiment erodes quickly on any selling as the fears of past bear markets come quickly in to the psyche. Many who are bullish one week will turn bearish once they see some sustained intense selling over a few days time. The longer we move sideways the better it'll be for the bulls down the road.

Turkey is in default. Spain was downgraded today. The market barely yawns. I don't know why it's reacting this way. You would think that with so many red flags already up on the market, news such as this would just crush this market yet all it does it yawn and move along. It shows the underlying strength of this bull. Whether it's near an end or not, all I know is that in the moment it seems as if it'll take something really terrible to come along and derail this thing. You need to respect the message being sent. Not one many are in love with because they want to short or don't believe the market should be moving higher such as it has but you are only hurting yourself when you play against the message in place. we'll continue to play what we see day by day but my best guess is that the market is setting up to be more lateral in the weeks if not months ahead.

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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