Yesterday showed a fourth gap down off the top at 1220 S&P 500. Fourth gaps are often the place where we see exhaustion in a down pattern. Where down trends go to die for a short period of time. That short period of time was a half-day of upside action. How incredibly sad is that!!

The market gapped up off the strong reversal hammer printed yesterday. There was no way to think that once the gap up was in place that it would just die out as the day wore on, but that's exactly what took place. Slowly, and then not so slowly, the market gave it up. It tried numerous times to rally back up, but each buying episode was met with an equal or greater selling program. The markets went from very green to very red as we closed for the day. Slightly off the lows but nasty overall action with the bears showing they are fully in control of the action. Bear market action continues for now with today's horrific reversal down.

So what was the culprit you ask that stopped this market dead in its tracks. The answer can be seen in some of tonight's charts. Gaps! When markets are in strong down trends, whether it's a bear market or not, gaps are often the place rallies go to die. And die it did. The S&P 500 has a gap 1100 but all it could muster would be 1091. Couldn't even make it up to the gap. The Nasdaq, however, did out perform and made it through the bottom of its gap at 2250. The top is at 2270. It made it up to 2257 and then died hard and fast. It fell 62 points or 3% off the days highs. Amazing! No mercy.

The bears pounced on the gap and sent a message that these levels now belong to them, not the bulls any more. The tide has turned.

In the bull run just past, the bulls had no trouble eliminating those gaps with ease. Sometimes on the first try but always by the second attempt. Now they all fail badly with the new owners of the gaps being the bears. That's the new reality we all have to accept.

The gap stopped this market dead in its tracks and thus 1100 and 2250 are massive levels of resistance.

The PowerShares QQQ (QQQQ) chart, or the proxy for the NDX 100, has a broken chart when the trend line broke, now sitting at 46.00. Every move back up towards that level gets rejected hard. Notice on the QQQQ chart below, the two back tests with long tails off that $46 trend line over the past few days. Again, this is what a bear market looks like. Multiple tests of broken support that gets back tested but fails in short order.

Notice also that the breakdown occurred with a gap down. Not good news for the bulls. Study it tonight. Notice those tails. This is what's so negative for the market right here. A bull market wouldn't tail. It would close right at that trend line and then gap over as a new day for trading begun shortly thereafter. Trend lines are just another weapon, once broken, that the bears will seize on such as they have the past few days.

When markets are bearish they tend to shoot off false signals on the short-term charts. Well, not always completely false but here's what I mean. The 60-minute charts will often throw off positive divergences. Sometimes they work for only a day or less and sometimes not at all. In a bull market they last for many days, but in bearish trending markets, like I just said, they either don't work at all or for much shorter periods of time than what we've become accustomed to in the recent past when the bull was raging on. If you choose to play them as they set up, please make note of that and so if you get fortunate enough to catch it right the next morning, Don't hesitate to at least take something off the table.

Look folks, let's be straight up here. The market is showing more and more of a tendency to fall at all levels of resistance from underneath. It's showing bearish action and this must not be denied by anyone at this time or it'll likely cause you some serious financial pain, if it hasn't already. Please adhere to the warning signals that are out there. Many keep screaming the bull is still in good shape and that all this selling makes no sense while causing you more and more financial losses in the process if you've been listening to them. Tune out the noise folks. Play what you see, not what you wish were true or hope will be true. If things turn we'll adjust back to being bullish, but for now you have to respect the message, and it says things are not very bullish for now

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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