Oversold. That's the word on the short-term charts, yet the market was threatening to break decently, or let's call it forcefully, below the 50-day exponential moving average, which sits basically right on 1430. The S&P 500 broke below with a bit of force today, but the RSI on the 60-minute short-term chart reached 22. It's hard to break an index down forcefully when you're that oversold. Not an easy chore to be sure. The bears tried, and although they didn't forcefully take the S&P 500 down below those critical 50's, it's not as if the bulls burst back above with any power of their own. A drop of the right or wrong news could tip the way this breaks. It won't take much either way. If we do lose those 50's, then the S&P 500 has a shot at testing the 1370 area in time. That would not be a death knell for the market, but it would sure create a lot more pessimism. Today was a great fight and it's not over.

Both sides have landed blows, but the trend is clearly still lower overall, thus the bears should get another chance sooner than later to take those 50's away with force, and for them, hopefully volume behind the price breakdown move. For now, the bears still have the onus on them to get the job done. It's something they haven't been able to do for quite some time now, thus, you can't say the burden is on the bulls to protect. They've done so for a long time. Now it's the bears who must take control away from the bulls with a strong gap down in the near future that'll put their mark on things. A statement that says you no longer have what it takes. Let's see the bears make the move before we get too bearish, but there will likely be more attempts in the not too distant future.

The one thing to take away from today's action is how those oversold 60-minute charts tried to unwind later in the day but did so without too much price appreciation. Not the best sign in the world for the bulls. In more bullish trends we often see the overbought 60-minute charts unwind overbought by moving laterally in price while things reset. Price depreciation isn't there while things unwind, and then you're back off to the up side. This seems to be happening in reverse for the moment, thus, we'll need to watch this quite carefully. In more bearish trends you'll often see short term sixty minute charts get quite oversold with readings as low as the mid to upper teens. Once it gets back near 30, still considered oversold, it starts to head lower again as the selling pressure picks up.
Oversold can stay oversold, especially on those short-term 60-minute charts. You pay far more attention to oversold or overbought when the daily charts are involved. When I watched how those oscillators woke up later in the day, but price didn't follow very much, it caught my eye. It makes me think that once we unwind a bit more, or not at all, we may try to forcefully break below 1430 on the S&P 500. We shall see soon enough. What the market needs is a few days and nights of good earnings reports to keep this from breaking down. That would allow a more forceful unwinding upward, which would protect 1430 on the S&P 500.

Speaking of earnings reports, thus far they haven't been all that good. If the market could start feeling a sense of relief that things aren't bad for everyone, and that some leaders from varying sectors feel good about the future, it may help to calm down the feeling of get me out of stocks. Many now seem to be taking that approach as outflows are increasing while pessimism increases with it. In the end that type of negativity can be good for the market, but it has taken quite a hit already, and if those reports keep coming in poorly then we'll likely see the bears get even more aggressive while the bulls back off on buying weakness. In the end it's always about earnings. Stocks have to be able to hold those always frothy P/E's. Let's hope things get better from here.

The S&P 500 hit the long-term trend line (one year) at today's low at S&P 500 1422. It also broke below that key 50-day exponential moving average at 1430. It looked bad but both held. 1422 and 1430 are only eight points apart, obviously, thus, it is very strong support. If the S&P 500 breaks below, things can free fall a bit, but for now, it has held. Watch 1420 would be the way. If that goes so goes the market. For now we watch and keep things on the very light side. It's day-to-day as we watch to see if earnings can hold us up, or whether they finally break the back of the bulls.

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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