Make no mistake when trying to understand what's in play here. Yes, we have a major headache with sentiment. No one would argue that a 41.6% spread of more bulls to bears is a real problem that'll have to be dealt with in time. No one, I believe, would also argue that we're still in a bull market. If you don't think we are then you haven't been watching for the past year or so. When sentiment becomes a problem it means that some decent selling is out there, but with a printing machine in place from fed Bernanke, the bull market lives on until the liquidity he's providing goes away. It's really that simple folks. When you have this type of spread in place, (57.3% versus 15.7%) it tells you that the time has come for reigning in the bullish attitude to some degree, but again, not completely.

When sentiment becomes a problem, markets can go higher for weeks before you'll see it start to hesitate. It's not at all an in the moment play. If liquidity weren't being thrown at the market 24/7, you'd see the market fall hard almost instantaneously. However, liquidity is being thrown at the market, and so timing the pullback to unwind is virtually impossible. Just want to be clear with everyone that timing a sell off is not easy when it's based solely on sentiment, and that you shouldn't lose sight of the bigger picture which is still bullish. Even if things sell off quite a bit that won't change the bigger picture bull market unless some other outside internal factor hits over time.

Money keeps doing the same thing in this bull market. It rotates around in order to keep things from falling apart on the down side. Money rotated today into the financials. They rocked higher while industrial and commodity stocks sold off. Money has recently been going in to transports and retail. This is one of the classic signs of a bull market. Money moves about when a particular sector gets overbought, such as the chemical area did early today. RSI hits 70 on a daily chart here, but is unwinding back to 50, or so, in another area, and so on, and so on. Sell the 70 RSI and buy the 50 RSI. The bears almost seem to have given up on trying to take this market down. Remember that markets go up almost all the time. It's never an easy chore for the bears. Liquidity is still available, it seems, to buy up what has unwound, while other areas of overbought get their much needed rests.

The market has tried for many days now to take out 1344 on the S&P 500 and 2808 on the Nasdaq with force, but has been unable to do so. However, you notice that we haven't fallen very far at all off these continuous failed attempts. This is where you have to tip your hats to the bulls, and find the noose for the bears. Those bears just can't get anything going other than to prevent the breakout. Once they do prevent it they can not follow through with some additional erosion.

This constant failure by the bears is what also gives the bulls some feeling of being unconquerable. Why worry when all the bears can do is delay a breakout. It doesn't mean the bears won't ultimately get the job done, but this is why the market refuses to sell, even with the sentiment problems at hand. The bears just aren't racing in to do anything. We simply watch 2808 Nasdaq, but particularly 1344 S&P 500, the old high there for more insight. 2808 is only gap on the Nasdaq, not the old high. If the S&P 500 breaks cleanly above 1344 the bulls are in business.

So things are more complicated than they've been for a while due to sentiment. Breaking out won't be as easy. If we do, you can't necessarily trust it 100%. If you do play, keep it light. Keep your stops tighter than normal. If a pattern is there that looks good, or a play tests back to strong support, you can play it as you have been, but just know that tighter stops are more appropriate now. Don't make them as loose as before because at any moment the sentiment issue can kick in and brings things down harder. There will be times down the road when it'll be safer to get more aggressive again on the long side, but beware in the short is all I'm saying. We're still in a bull but with caution near-term.

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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