It does get boring when you have to deal with a market that whipsaws about on a daily basis. But the real question is what is the message that this whipsaw is representing. Some would interpret this as bearish behavior, while others would say they just can't figure it out. The masses will always turn negative when markets stop moving higher on a regular basis, especially when you consider the news that sits out there every day of our lives. We hear so much about the economic turmoil throughout the world. That starts to get engrained in our brains, thus, when markets correct, it feels like it must be something other than a healthy pullback to unwind things.

The fear of what may be occurring takes precedent over what may actually be taking place. There is always the possibility that what's taking place is worse than what we think it is for those of us who think this is a pullback to unwind those recent overbought conditions on the daily index charts. Time will tell us what's the correct thinking, but when you study those daily index charts there is, for the moment, nothing bearish taking place in terms of price action. Until that trend changes in the bigger picture, you have to stay with what's been working. For now, as I see it, the market is chopping around as it tries very hard to unwind further and create more pessimism.

Let's talk about sentiment. Two weeks back I talked about the red flag of how there was a 29.7% spread of more bulls to bears. Not a great number. It's not the end of the earth type number, but it's never wonderful to have the spread at basically 30%. 35% is a get out of stocks number for the most part. Even though the spread can reach the 40's, but 35% is really bad, thus, getting to 30% was, at the very least, a warning sign.

The market did start to fall and now we have readings at 21.3%. A beautiful move lower created by increasing pessimism over a slightly down trending market. It doesn't take much folks for things to turn more pessimistic as bear markets from the recent past are still etched in the minds of the masses. The lateral-to-down action is creating exactly what the bulls need. Action such as we're seeing this week may help it along even further next week. For now, sentiment is no longer a concern. That's good news for the bulls.

The commodity world is beginning to ignore the action from the Mr. Bernanke, with regards to what QE3 may do for our economy and other economies around the world. Instead of the commodity stocks blasting higher, one would think they are starting to fall hard. The actual commodities themselves are falling in price, led by oil and steel, two heavily connected economic barometers. If QE3 was going to stimulate the economy, it would be natural for those stocks to be blasting higher. You can see no one really believes all this stimulus is going to do much of anything. History tells us the masses are right in their thinking. It could be the Fed trade on inflation is off, and the only concern now for the market is worrying about longer-term deflation. Something we have to monitor carefully.

All of this said, I still think and believe that the selling off the top is the 70 RSI pullback I talked about. At some point, the market was going to need to unwind those overbought conditions on the daily index charts. That's exactly what's going on for the time being. There's nothing bad in terms of price or how the charts are looking. There's room for more selling should the market want it without taking the market into bearish conditions. 1419 is strong 50-day exponential moving average support. It would be nice if that level held. We can breach it, but holding close would be best. Staying long is fine. Dealing with pullback's along the way.

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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