The bulls had a rare experience this week. The market was actually down on the first day of the new year. Something that hadn't happened in six years. They also had to deal with a down day of over 100 points on the Dow. You have to laugh, but that's just not very common these days. The problem was the gap down yesterday that is not playing against the bulls on any attempt back higher. Some technical damage for a change. This doesn't mean the market is going to just roll over. Not by any means although the conditions are such that it could. However, turning the Titanic is never easy, and, with buying on weakness the mantra for quite some time, the bears have to be patient in how this market slowly turns from bullish to a bit more bearish for the short-term.

They have done something positive, and now must keep moving forward with pressure on the bulls. There aren't many bulls left, so it wouldn't take very much to get the bull to start feeling fear. I'll talk later in this report about what level that fear would really kick in from. You have to start somewhere, but once you start you have to be sure to keep up the pressure, or you'll lose whatever momentum you've gained. That's the story for the bears now. Don't give up the technical damage you've caused. We shall see if they can hold the line and create more damage in the next few weeks.

Based on some technical damage I just spoke about based on yesterday's gap down, especially due to horrific complacency issues, one would expect that the bears will indeed create more momentum for themselves in the days and weeks to come. Not every day, and not necessarily one huge down day followed by another, but they should be gaining control from bulls. I say "should" because timing it all is literally impossible. When you look at the numbers it's not pretty, if you're a bull. Over 60% bulls. In fact, nearly 62%.

With the bears at 15%, and the spread at 46.4% officially, you can imagine why the bulls aren't in the driver's seat from a complacency issue. It's scary for them now. It's impossible for these levels to hold for too long, thus, at some point the bears should get rocking. But again, impossible to time. The bull-bear spread speaks to how difficult sustainable-upside action will be for a while until things unwind, and we get more bears in the market. Always up days, but sustainable upside will not be easy from here. It shouldn't be is the best way I can say it.

Since froth leads let's focus on the Nasdaq for now. It's a world of gaps. One above current price and one below current price. From a purely technical point of view, you simply obey the rules of these gaps, meaning whichever one gives way first will lead to a more-sustainable one in that direction. So let's look at these key levels. Although there are moving averages in between they're in the middle, and thus, not key. The gaps are key here. Above current price is massive resistance at the bottom of a gap at 4160. The top is just above at 4165, so if the bulls can get a close decently above 4165 that would be bullish.

Now let's focus on the gap below. This is key to the bears having a chance to create real fear. 4130 is the top of the gap. That's important, but the real key level is the bottom of that gap, which is 4110. ONLY when the bears can remove 4110 with some force are they in control. If they can do it then we're likely to fall quite hard for some time. Anything in between 4165 and 4110 is noise. Meaningless noise to be sure. Adjust your trading for those two key levels. 4110 and 4165. Keep it light in between.

Have a great weekend!

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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