I thought about different titles, but after thinking about it the word splat is the word that seemed best to explain today's action across the stock market world. China got annihilated last night to the tune of 6%, which would equal 120 S&P 500 points and 1000 Dow points. Imagine those headlines, if that occurred here in the United States. Europe followed China. We followed Europe, and the result is a market on the precipice of seeing its bull market vanish away. It hasn't happened yet, and may not happen, but the bulls are being tested here in a very large way. It's put up or shut up time for the bulls. If we lose 2040 on the S&P 500 then its lights out. Of course, it must lose it with force, then back test and fail on that back test to verify that the good old days are gone for a while to come.

We could lose 2040, but if it's not forceful it doesn't have the power that the bears need. They need a move to the 2020 gap, or 2000 support area, and then let a 2040 back test tail down to know they are safe and in full control. While it seems clear they are making progress they have yet to do the dirty deed below S&P 500 2040. Just think back a bit. We were looking at a breakout over 2134. It seemed imminent. It never happened. That could happen here on the other side of the ledger. That said, things look bad, and so we need to be very careful here for the short- to possibly mid-term. A powerful day for the bears once the gap down occurred. They ran it lower all day the way they're supposed to if they intend on removing 2040 over time. It's getting interesting folks. Maybe this six-month plus-base is about to go away. See it and respond. Not before.

Fed Yellen came out with her fed minutes this afternoon, and surprise no rate hikes again. A stunner from the Fed. NOT! She knows things aren't good, and now is NOT the time to give the market more headaches. It's on the precipice of losing its long-term uptrend, thus, there's no way she'll do anything that resembles a new problem for traders to handle or deal with at this time. Not only will she not be doing any rate hikes this year, she's likely to start talking more fed aid if this market starts to get near S&P 500 2000, or a bit below. Remember her title is really 401k manager. She is desperate to keep people smiling.

That won't happen if there 401K's are losing value. The economy will worsen rapidly if folks are unhappy with them. That's the worst thing that could happen to an already weak economy. And make no mistakes about it, our economy is still extremely weak. It's improving a bit, for sure, but still very, very weak. The ISM Manufacturing Report alone tells us that as it is hovering barely above the recession line of 50. A low 50's ISM Manufacturing Report isn't the type of thing confidence is born from. The economy is in bad shape. Our market is falling some. Europe isn't doing well and Greece is a real problem. Let's not forget bad monthly charts, froth and China's market in free fall these days. She's not going to raise rates for a very long time.

Froth is still completely out of control. Don't let other services tell you otherwise. Lots of different things being sent to me by people showing fear is on the rise. In fact, huge fear. No sale. The bull-bear spread is still an unreasonable 29.2%, and to make matters worse, the bears are only at 15%, barely above the lows of this bull market, which was a hair under 14%. The bears need to get to 30%, or higher, to see froth go away for the longer term. The bull-bear spread inverted would be nice, but let's shoot for 20%, which would be a very welcome event. That would take, however, a big drop from here in the market and perma bulls would suffer great pains if they stay in to see that level. For now, we need to recognize that froth has NOT gone away. It would take a lot more selling to make that become a reality.

We learn a lot more in the next few days, folks. Keep in mind that losing 2040 by a little bit isn't a breakdown. You need a strong, forceful close below to start taking it seriously. You then back test, and failure to understand the market's intentions. Patience as we learn and do not think something is imminent. See it and only then believe it. Things can look bad, but that doesn't mean they really are. The market should be a "show me" institution, not an "I think" institution. See the breakdown and respond. Not before. 2040 is the key. Watch it like a hawk.

Interesting times are with us, folks.

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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