When studying markets, what you try to do is find a change of character. Something different that hasn't been taking place for quite some time. Something out of the ordinary. If it happens once you can shrug it off as a one time happening that really shouldn't be given any real energy. If it happens more than once you have to start tasking it seriously. Now I think we have to start taking things more seriously from a bearish trend point of view. There are two thins occurring now that have to be taken as a bad omen for the short-term. We are getting any early buying turned into late day selling. Late day selling is a way of the big money saying you can't do too much if you're a bull. Stop buying early on.

Then there's the oversold conditions that have gotten more oversold than at any time over the past year, if not more. You don't see stochastics get down to zero on the daily charts in bull markets, but that's what we had early on today. The daily S&P 500 chart flashed a 0.97 stochastic. Not a bull market like number. In addition to that, the market didn't blast off from this incredibly low level. In a bull market, should you ever touch zero on stochastics, you'd expect a blow up and out to the up side. Not today. Not by any means. In fact, the Nasdaq had another very bad day technically.

The oversold conditions, and lack of a rally, along with late day buying are two major red flags we have to give special attention to without question. To ignore them would be incredibly foolish. Two major changes of trend are not to be taken lightly by the bulls. It tells us that the bears are in full control of what's taking place now. Respect the message so as to keep yourself out of trouble. It naturally doesn't mean the market won't have good rally days. It will. It does tell us, however, that extreme caution is to be taken with regards to new long set-ups. The message is out there. You should respect it and respond accordingly.

I am calling the last fifteen minutes of yesterday's action and today's full day of action a Bernanke response period. The market hated his body language yesterday when he spoke about the state of the economy. It hated the words he used even more. You could see him feeling badly about what he had to admit to the economy not recovering as he had hoped. That it was not creating the jobs he thought it would with such a massive influx of cash on a day to day basis. That the banks weren't lending as hoped. That the consumer wasn't spending as hoped. That we needed the consumer to jump start things.

You could tell he didn't think they would based on inflationary problems he's causing by flooding the system with cash. The market didn't like a thing about his talk nor how he answered the questions fired at him once he was done speaking. Today the market changed its habits as discussed above mostly because of how it saw things from the head of the fed. Not a very promising report to the rest of this nation. You could feel how hollow his words were, and that you knew he was not hopeful about employment. The market smelled bad news. It acted badly today. A Bernanke day at extreme levels of oversold. No bounce.

More and more stocks are acting as a bear market would. You can see it wherever you look. Clear to all by now should be the reality that the financial sector is in a true bear market, even if the majority of the rest of the stock market is not. They have been the great under performers for quite a long time. They were dragged up when the market was blasting higher but still lagged badly overall. Now they can't catch a sustained up bid and are performing the worst of all the sectors in the market. They are melting down pretty rapidly now.

Other areas are joining in as well as more and more stocks in the retail sector are doing poorly. The Retail HOLDRs (RTH), or the ETF for the retail stocks, is breaking down now. Telecom is doing very badly after the warning today from CIENA Corp. (CIEN). The stock astonishingly down over 16% today alone. Sector by sector is breaking down now with massive warnings from all over. The economic activity that had been giving these sectors a boom higher has reversed course, it seems, since about March. It's accelerating now. With more and more sectors breaking down it'll be tougher and tougher for this market to recover very much.

There are two lines in the sand for this market. 1262 S&P 500 is both the 200-day exponential moving average and the up trend line off the March 2009 lows. A huge area of support that the bulls need to hold at any cost. Below that we have the recent lows at 1249. If we lose the area from 1262 down to 1249 with force, you have to start thinking that we're in more than a bull market correction.
It may be a bear market but that's not clear yet. At the very least, you'd expect a strong, powerful rally off the 1260/1265 area. If that does not take place, if a rally is tiny in nature with quiet oscillators, that's a bad sign of things to come. We'll only know the answers over time. For now your job is to protect yourself more than anything else. Cash is best 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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