The market is finally feeling the wrath of the correction. Emotions are flying high. People are confused and angry. That's when you know the market has begun to sell with some force. When people hate the game or anyone they depend on when playing the game, you know the selling has truly begun. It's easy to be happy when markets are climbing, but it's not so easy when it finally sells 5-8%. You hope people have taken the warnings about the difficulty of sustainable upside seriously and weren't playing too inappropriately, but the game does beg for action since in reality, it's nothing more than a big casino in many ways. The lure of playing is always there. There's no one to stop you. You're free to do whatever you want at all times. The house isn't watching. You are there for six and a half hours if you don't include pre- and post-market action and you have the freedom to do whatever you want.

When the bell rings the excitement begins and when it's going your way for a while you're loving life. When it goes against you because you played too hard for too long, you feel like your life has just ended. Today we saw the reason most aren't feeling too good. Too many kept playing too aggressively and today was there day many great set ups went to market heaven for an extended vacation. Many had already done so but stocks that were holding up very well, like Discovery Communications, Inc. (DISCA), to name one of literally thousands, gave way. Market is playing catch up to those that had initially defied the pullback off the top at S&P 500 1687. So now the correction flashed a more difficult period ahead. It's healthier longer term for this market. Selling isn't always a bad thing.

The selling has done quite a few good things already. To start with, we have seen the oscillators, particularly the MACD's, stochastic's, and RSI's on the key daily-index charts come down quite a ways off the top. A necessary event if the market was to ever have real sustainable upside again. In addition, we have seen many bulls turn agnostic. Not too many turning bearish, yet, but we are seeing a very rapid move down in the number of actual bulls. The bull-bears spread which only two weeks had been at 36.4% has now rushed lower to a reading of 25.0%. That's over 11% in just two short weeks. Amazing how fast people turn from happy to neutral or outright bearish. It never takes much to turn people sour on this game. It's understandable.

So many bear markets over the past 13 years. People are jaded. Once the good times stop for just a couple to a few weeks, the mood changes dramatically. Bears are slightly back over 20%, which is nice but higher still would be better. The real good news is bulls are down to a very low 45% reading. That's why the spread is only at 25%. With the action we're seeing this week, you can almost guarantee the numbers to get even better. Those who turned agnostic last week will get fully bearish by the end of this week while more bulls will turn agnostic. The ratio could be down near 20% by next Wednesday's reading. That would be super for the big picture bull market. The selling is most definitely accomplishing its mission. The news there is very good for the bulls.

What happens technically to the market is interesting. The massive group of good set ups finally run out of gas and they turn down. The more stocks that turn down thus breaking support the more time it takes to heal things up over time. The breakdowns aren't difficult in terms of price because those rising 20- and 50-day exponential moving averages aren't too far underpriced when the market was at its recent highs. Those moving averages race up thus any selling of even of a few percent will cause those averages to break down. That's good news in terms of the pessimism, but bad news short-term in that it'll be more difficult for a while to turn things back up too rapidly. The breakdowns will be supported by the bears on back tests for a while thus time is essential for the bullish case. If you enter too aggressively too soon it'll be very tough all over again.

You usually need quite a few tests back up before the bulls can gain the necessary energy to new breakout moves. This amount of time it takes can continue to frustrate the bulls thus fewer and fewer will get bullish so that when it does break up again, sentiment will not be a problem for a very long time. The masses simply won't accept it or believe in its sustainability. For now more and more stocks are breaking lower and through key support so understand the process that needs to take place over time. We can go lower still. A move down in to the mid or mid/upper 1500's is very possible and not at all bearish bigger picture although it will feel bearish. Just understand the short-term technical damage and thus don't over play too quickly.

S&P 500 1608 or the 50-day exponential moving average is powerful support that is likely to get taken away in time. A close a few points below is not a breakdown. If it does with some force, we can see a test back down to 1575 which is fine. A move to 1550 also would be fine over time. A move to 1575 is basically only a 7% pullback which is in line for sure with a normal move lower. A correction of even 10% would be just fine, although it won't feel that way. Nothing bearish, yet, but always on guard in case things turn that way. For now, this is absolutely in line with normal market behavior.

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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