I thought, based on the markets behavior ending last Friday, that we'd see a bull-bear spread on the Investors-Intelligence survey of around minus -7% today when the new number was released. I wasn't pessimistic enough apparently as the number came in at -10.4%. With the action we saw in the market Monday and Tuesday it's actually quite possible we're now at lower levels on this measure. It goes to show you how fast things can unwind from froth to fear when all the leading froth stocks get completely annihilated, such as we've seen in the world of biotechs.

We're also now seeing the recent leaders starting to give way, such as Apple Inc. (AAPL), Facebook, Inc. (FB), Amazon.com Inc. (AMZN), and a host of others. This is creating even more fear, which would explain why the 6% ramp up in the number week over week. It wasn't too long ago, folks, that we saw the bull spread at +46.4%. Now it's -10.4%.

As I always say, froth requires no action. Fear requires and gets an immediate response. The unwinding from froth to extreme pessimism took only a few months. Astonishing! Keep in mind that we stayed over 30% on the bull bear spread for nearly two years while many monthly charts had RSI's over 70 for up to 25 consecutive months. I bring this up because while we are at 10% on the spread, and are likely moving even lower here, it can stay well below zero for quite some time. It won't stay as long as the froth lasted above 30%, but can stay below zero for several weeks or even months. Don't use froth alone as the catalyst for a major rally. It can help move things up some, but if the economic news continues to worsen we won't necessarily see anything special on the up side. Things have to change economically both here and around the world for pessimism to surrender up a massive rally higher. The market awaits its catalyst.

On the subject of the catalyst, we have that opportunity dead ahead. Tomorrow morning a half hour into the trading day, we get the ISM Manufacturing Report. Now, let's take a look at what we might expect. The market was rocking up today on the catalyst of oversold and deep pessimism. Then the PMI for Chicago came out sub-50, meaning recession in Chicago, a major hub of American business. Unfortunate as today was today it seemed the market would have a huge compression up day. If the entire country comes in as being in recession tomorrow when we get that report I don't think the market is going to be very happy.

Already, nervous bulls will not likely step in front of that news, then add how the bears won't feel the need to cover, and then things could get ugly. If that report is bad, we'll find out how pessimism can hold things up without completely falling apart. Let's just hope, if you're a bull, that we don't see the same type of news for the rest of the country that we saw out of Chicago today. After tomorrow's report we then get the next most important market moving report on Friday pre-market in the Jobs Report, and who knows how that will play out. It will be more of an afterthought to the previous days ISM Manufacturing Report. Two big days dead ahead on the economy with tomorrow's report by far the most significant in terms of a market reaction. Buckle up. This is going to be the report that separates bull to bear for good.

Let's look at the market technically for a moment. There's the six-year up-trend line off the March 2009 lows that comes in at approximately 1850 (See our first chart below). A strong, forceful close at least 1% below, or 1830, or lower really puts this market in deep trouble from a bull-bear perspective. Closing below that trend line for the first time in six-plus years clearly opens the door to much deeper selling. The bears will know they have the ball in their hands and can do as they please. The technical damage below 1850, with force, would be severe to the bulls and a gift to the bears. The bulls just successfully defended the lows at 1867, with a double test yesterday when the low was S&P 500 1871. A double bottom with deep pessimism simply needs that solid catalyst, and, hopefully, tomorrow the bulls get their wish, but there is no way to know what's coming. Chicago PMI is a red flag today, but maybe things are much better elsewhere.

It's do or die time for this bull-bear debate as we test this key-support area. Tomorrow will be a fascinating day to watch. The fireworks begin at 10 AM Eastern Time. Don't miss the show.

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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