Friday printed the type of candlesticks across the board that suggested the market was ready for a counter-trend rally. I wrote about it in the newsletter over the weekend. Strong reversal sticks on increasing volume told the world that the bulls needed to play for a while as the bears sat it out for a few days. Like a ball player, everyone gets tired if you're in there day after day. The bears had certainly been in there day after day and had to tire eventually. Friday suggested that was about to take place.

That said, we gapped up this morning and, although it wasn't a gap up and explosion, it was a gap up and hold that trended ever so slowly higher throughout the day. Full candles overall suggests it will be a while before the bears can gain back full control of the markets. If there had been very long tails at the end of the day it would have made getting lower easier on the bears. But these are basically full candles which will hold the bears down for a while until things can likely unwind further up.

It makes sense that the rally was strong today and should continue some when you look back at the degree at which this market sold, making those momentum oscillators extremely oversold for a very long period of time. When you get too oversold for a longer period of time than would be considered normal, when the rally ensues, it usually goes on for a while as it takes time to get all of the oscillators out of oversold. They're not just going to go from 23 RSI's to 30 RSI's and then rush back lower. It usually takes time to get them well over the 30 level, often approaching 50, and sometimes even breaching above that some.

Pullbacks that take the market to extreme levels of oversold are no different rushes higher that take the market to extreme levels of overbought. When it snaps in reverse the moves can be stronger than one thinks is likely. That's why it would not shock me to see full back tests of those long ago lost 50-day exponential moving averages. That would take the S&P 500 back up towards 1410. It doesn't have to go that high but it is in play and from time to time you get breaches above the 50's simply because of the short covering that takes place when markets rise. Bears tend to jump ship rather quickly. We watch with interest and hope the S&P 500 can make its way towards 1410 in order to give people some relief.

It will be very interesting this Wednesday when we get the report on how the bull-bear spread is progressing. Last week was a bad week for the market, thus, I expect the numbers, or the spread, if you will, to have gotten even more narrow than the nine percent spread we had the week prior. It's starting to get down there. It may be approaching zero but, whatever the number is, it will show more bears and less bulls in all probability. There is no headache, though, on the sentiment front, and it's one I don't necessarily understand.

The VIX continued to be very low, and that was before today's rally. When the market was cascading lower, the VIX refused to rush higher, which is quite abnormal since we were breaking key support levels along the way. This bothers me somewhere deep down. We shall see if this comes home to haunt the bulls in the weeks ahead. It would have spiked but refused to do so. Very strange. It has no trouble falling at the first hint of upside action, but it won't fall much on even the worst of market days. That's something to be explored and watched very closely on the next pullback.

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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