The market has actually been struggling since early July. We were S&P 500 985 a few days into July, only to see us top out a bit ago at 2019. Only 2% higher before that gave way, and now we're actually below where we were at that early July reading. The froth has been catching up slowly, but surely. It has not allowed the market to make the next journey higher. Too many bulls. Not enough bears. The market getting full. Today we cracked 1950 on the S&P 500, or, basically, the two-year up trendline. Not good for the bulls. A long trend line, such as that, needs to hold, or things can get very nasty quite quickly. The market also started becoming more violent over the past three months, since that July top.

That's what starts to take place when a market has pretty much had it with sustainable upside action, and is slowly, but surely rolling over. It takes a very long time for that process to unfold, since the bulls have been rewarded over and over for buying weakness. That's why topping, much as what occurred with SPDR Gold Shares (GLD), takes so long. Bulls and bears alike are creatures of habit, and breaking the habit can take a very long time. It takes a period of time that can cause great frustration before the bulls are ready to let go of what's been working. Maybe today was finally the day, but we know the story here in that we need follow-through action to the down side to confirm 1950 on the S&P 500 is truly gone for a while. So the bears took the first step today. Now they need to follow through. No excuses. Keep things down. Step down on the gas and allow 1950 to become a rear-view mirror situation.

Two things are at play here. Froth and global deflation. Each one on its own can cause the markets to stumble, even with the fed out of control with assistance not only here, but across the globe. Asia pumping in 81 billion in QE dollars, while Europe starts their first major QE program as well. We see economic numbers and reports deteriorating rapidly across the globe, thus, the reason for all the free bank cash that will hopefully be used for loans, etc. The more our country realizes that our economy will be adversely affected by this global slowdown the higher the probability that our super high P/E, or no P/E, stocks will take it on the chin. Everything gets hit as we realize things will slow, and, thus, current earnings can't be sustained by just about everyone.

So with deflation becoming more of a reality we look to froth and what it means for this market. We have been frothy in terms of bulls to bears for roughly seven months straight. The fed and their zero rate stand has helped quite dramatically to hold the market up in the face of this incredible froth but maybe now, along with deflation, it's just too tough to hold thing up any longer. We're about to find out but the combination of deflation and froth may finally outweigh the effects of the fed leaders around the globe. With this taking place and if it continues in terms of selling, it wouldn't shock me if we start hearing more QE noise from our fed over time but that's only if the selling accelerates below 1900 on the S&P 500. We will see a more desperate Fed Yellen, if she starts fearing the loss of the stock market. She'll take all measures necessary over time, but that's a long way off.

When markets get such as they are now in terms of weakening gradually, you want to make sure you're not over playing on either side. Long or short can be difficult as you must always respect that the bulls fight a lot harder than the bears do the majority of the time. It's a lot easier for markets to rise than it is for them to fall. Bull markets are more frequent and last a lot longer than bear markets do or even corrections do. However, corrections can last many months and feel like a bear, so you don't want to get involved on the long side too quickly if the market selling accelerates. You would need a buy signal to get aggressively long again along with a major unwinding of froth. In other words, easy does it. Just because we usually go higher doesn't mean we'll just blast back up.

This is a time for lots of cash as work our way through the maze. Lots of rally days for sure. This is NOT a bear market but could become a very nasty correction. SLOW AND EASY. CASH is a good position at times.

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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