Well, it was an interesting day. I don't think anyone would argue that. The market went up a 12 handle last night on the S&P 500 futures when they announced a rate hike. I have no idea why a rate hike would spike our market to such a degree but it did. By the time we woke up this morning that green 12 was a red 12 handle. The market was not in the mood for anything to the upside with complacency trying to work itself off now. We gapped down hard and then blasted back higher after drifting back down fairly hard.

Mr. Bernanke came out and announced what was expected. Another ten billion dollar taper. They also signaled to the world that short and long-term rates aren't going anywhere to the upside, even when the unemployment rate hits 6.5%. This tells all of us that the bull market has a long ways to go once the correction is finished. After they announced all of this a war was on with both sides gaining traction from time to time. In the end, however, the bears mostly won out, although we were off the lows. The Dow down 189 points isn't exactly bullish. 46 on the Nasdaq and 18 on the S&P 500 rounded out the day's action. The S&P 500 closed at this 1775 support level for now.

It breached a few times but basically closed on it. The bears still have work to do but after today's action they now have all three key sectors in the red below the 50 day exponential moving average. They have waited for this moment, and now it's upon them. Now it's their job to keep it there. The bears have found some success, and that's good for the market bigger picture.

Let's talk about sentiment. The bull-bear spread recently hit an obnoxious 46% on the spread. That just basically doesn't happen. That wasn't very good news for the market. Realistically you know it can't stay up there. Thankfully, China had some bad news and the market began to sell with a force that we haven't seen in quite a long time. It's hard to remember how long. In the past few weeks, with the market acting poorly overall, we have now seen the spread drop to 37.8%. It was a nice drop from last week's 42.5% reading. We're headed the right way for now. With this week being poor, I am sure, the unwinding continues. The longer the market struggles the faster we'll get to those 20% readings we need.

When we get decently below 30% the market can begin to try higher with sustainability. It'll be hard to do that before we get down to those numbers. There are up times for sure, but real upside won't likely happen until we get those numbers to drop below 30% with some force. Remember that it takes less time than one would think in order to unwind sentiment. Get some fear to appear and down it goes. Fear is stronger than complacency, so it won't take, as long as many think to get us to unwind, but you need patience. It's likely a multi-month process for which we're already one plus month from the top. Like always, the process will follow through until it gets where it needs to go. It's never different this time. Just how long it takes to get there, but it will get to where it needs to go.

Now let's talk about the very, very short-term. The move down here has created quite a strong positive divergence. It does not have to play out, since we're in a down trend, but it's hard to deny such a powerful divergence at deep levels of oversold. MACD's well below zero, etc. I would be shocked if we're not up tomorrow morning. I would be shocked if we don't try some type of rally during the day. It's no guarantee, but one would expect the bulls to try a bit here. The key for the bears now is if they allow this rally they must defend the Nasdaq 50-day exponential moving average as it approaches from underneath, that level being 4084.

The Nasdaq closed at 4051, so there is room for a rally without breaching back above or at least not closing above those 50's. We take this one day at a time. To me, the interesting thing will be how the rally takes place. What will the oscillators do, etc. Will they confirm price or not. If not, this should be a very short lived rally. Next strong support on the S&P 500 is at the 1750/1745 area.

Please take things very slow here. There's nothing good with this market. The next several weeks and possibly months, should remain difficult at best. It'll help the longer-term.

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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