I haven't seen a set up this good for quite some time. After studying the charts this morning I would have guaranteed a short-term rally was 100% in the cards. No ands, if, or buts about it.

Strong divergences setting up on the Nasdaq, S&P 500 and Dow just to name just a few key index charts. Oscillators compressed. That and more. Finally a right shoulder. Finally a good bounce. Market rocks up. Market rocks down. Nasdaq closes a whopping 50 points off the intra-day high. Every index chart the same, basically, on a percentage basis. Colossal moves down off the highs. Incredible. And embarrassing. I take full responsibility for making an absolutely horrific call on the market and on new longs. No excuses. Just awful.

The market closed a drop off the lows but the overall action was terrible for the bulls. Everything back below those critical 200-day exponential moving averages. Nothing is well. If not below the 200-day exponential moving average, then below trend line support. Below one-year trend lines, which is critical.

The advance/decline line was excellent mid-day confirming the move, and then suddenly out of nowhere, the euro collapsed off its day's highs and the market followed, which also served to reverse that solid advance decline line. The Nasdaq finishing 12/14 negative after being positive 18/6. Bottom line is, it was another day in the down trend and another day of bearish action whenever the market tries to rally off oversold and positive divergences.

Leaders failed the most. Some stocks have yet to break on the Nasdaq that one would think needs to but Apple Inc. (AAPL). lt broke below its 50-day exponential moving average. F5 Networks Inc. (FFIV) struggled. Netflix Inc. (NFLX) rocked again and refuses to die, just to mention a few, but more and more are starting to crack or even break. Baidu Inc. (BIDU) had a massive reversal off the day's highs and is looking worse and worse.

If the leaders would crack in a big way the market has a chance to make a meaningful bottom over time. Most everyone has to feel pain for a market to bottom. There will always be exceptions. However, there are still seemingly too many that need to fall harder than they have. Today was a start although a rally seemed to be in the cards first. Never happened and these are now leading down which longer term is necessary.

S&P 500 1040 is key, as we all know. With the Nasdaq closing 50 points off its intra-day and with the S&P 500 closing 22 points off its intra-day highs, it seems like yet another test, the 4th test, of the S&P 500 is coming to market near you. The more you test a critical support level the more likely you are to take it out. It gets heavier and heavier. If 1040 goes with force then it will go lower and ultimately make the classic back test around 1040 and likely gap down, signaling the bear market is in officially. If it loses 1040 with force, things get scary for everyone who's locked and loaded to the long side. Until 1040 breaks we are in a range between 1040 and 1100.

Yesterday I wrote how I didn't like the internals on the rally. How it wasn't clean. How it told me to stay cash for now. Today I got emotional with what I saw on many daily charts. Not just index charts but individual charts. Saw scores of charts that were set-up to make a right shoulder. Who knows, maybe that still comes but there was no excuse to reverse feelings so quickly. It just looked so technically perfect yet it didn't pan out. Embarrassing really. I haven't seen this type of set-up not work short-term in a very long time. It shows the power of this down trend. Respect it better than I did today.

Until all the moving averages get taken out on the up side, or until we can get the right ingredients for a capitulation bottom, I am likely staying cash. When you can't read the tea leaves right short-term it's best to stay out. That's what I plan on doing. If the S&P 500 loses 1040 with force I will short the back test over time. I will not step in on rallies. Sorry for terrible work today.

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.

Comments

Mike Isaac
10 Jun 10, 04:01

Jack Steiman

Nobody is perfect Jack, but I think you do a good job.

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