The bulls were up against it big time early today with the futures crushed and yet another gap down setting up in the pattern. Another gap was not what the bulls wanted to see, especially since the S&P 500 was already so far from its 200-day exponential moving average all the way up at 1101. If you get too far way it allows for the trailing 20-day exponential moving average to catch up very rapidly and that's also very bad news for the bulls. The 20-day was at 1164 a week ago but is now all the way down to 1128, only a drop more than 2% from crossing the 200's. If the 20's cross below the 200's it's very negative for the bulls.

The Dow was down about 200 points on average for most of the day until there was about two hours left in the day when it started to try to rally back and narrow the gap down. You could feel the bears starting to run out of steam as the day rolled on, unable to run the gap down, which was huge in size. The bulls caught up late allowing the shorts to cover and that combination put the market back up for the highs of the day in to the close. Solid action suggesting a short-term exhaustion has taken place and now we're likely to rally a bit from here. The bulls can take a breath knowing some upside is extremely likely from here.

What kind of bounce can we expect? I wouldn't get bullish here folks. The market got extremely oversold with the RSI's all getting at or below 30 on the daily chart and that normally tells me the market is about to bounce off its lows, especially if the market had just been in an extended period of the down side from the top of the RSI scale at or above 70. So now what we do is look above current price to see where things get tough.

The S&P 500 recovered its gap today and the Nasdaq basically did as well, so now we look higher up. The S&P 500 has strong resistance, as we know by now, at the confluence of the 200-day exponential moving average at 1101 and the SPDR S&P 500 Depository Receipts (SPY) gap at 1100. The Nasdaq has a major gap at 2250 thus 2250 and 1100 are areas I think this market can bounce up, too. That area or very close on either side of them. Expecting more than that I think is a big mistake. The market isn't in good shape but I think the bottom has been made very short-term. We should have a one to two day rally to test back up those lost 200-day exponential moving averages.

Excellent evidence that the market has seen a short-term bottom can be seen in the iPath S&P 500 VIX Short-Term Futures ETN (VXX) or the representative for the VOLATILITY S&P 500 (^VIX). It has put in a double-top with a long red candle at the top with a very spaced fast-to-slow line on the MACD from the top of its cycle. This normally means a short-term top is in there and that one should expect a pull back in the VIX and thus a short-term move up in the market.

Now, to go one step further, that VIX chart is very healthy, still bigger picture meaning the down trend should come back in to place in the not too distant future. This should be a short-term bounce only and will also serve to remove some of the pessimism that's starting to grow out there. A few hundred points on the Dow and a couple of decent up days will help on that front. Bottom line is it appears the short-term low is in, but it shouldn't take long before the bears get more active again.
If the bulls want to hold out long-term hope they can say we saw a classic double bottom take place today on the S&P 500. The

February intraday low was 1044 and today we saw a print of 1040 before recovering late in the day. Three months apart make for an ice double bottom. The problem here is we are not seeing any positive divergences on those daily charts to suggest a longer-term bottom is in this market. If we had it I'd be head over heels long here but we just don't have anything even resembling a good MACD. This poor MACD suggests that once we bounce a bit it will be time for another move down in this market to levels that are unclear at the moment. Don't marry the long side here. Respect that we need some buying for the very short-term but not much more than that.

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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