Right now is an EXTREMELY critical time for the market, and I'll explain why so pay attention. On Thursday of last week, we made a triple top breakout on the S&P 500 above 1947. A full candle day above that key level as we closed on the highs. The key was to see follow-through the very next day, Friday. We got just that. A nice follow-through early in the day, but we got overbought. Overbought can stay that way, but not this time, as we fell back and closed at 1948. One tail up, thus, not the best action for the bulls. We came in to today no longer overbought, so no more excuses. We started out slightly red, but blasted higher as the morning went along. Halfway through the afternoon the fun stopped on the up side.

We started slowly, but gradually pulled back again, and fired a long tail for the second straight day, which included a close below 1947. Not far below at all, thus, there's still hope for the bulls, but a second long tail on consecutive days after breaking out. Not celebratory action for the bulls. Not hopeless, but not a celebration. It keeps the near-term in question. The bears can't feel secure. They have prevented further upside after the false breakout, but have done nothing in terms of putting the bulls away. That's still a big gap down, and goes away from being a reality, and until we get that type of action both sides are still alive. Try not to read too much in to this failure. Not yet.

It's really important for the bears to do now what the bulls had to do but couldn't. They broke it out but didn't follow through. The bears have prevented the breakout for two days in a row but now they need a follow through. Neither side is showing much in terms of domination so we still have an unwritten short term picture. Following through these days isn't exactly on anyone's top priority list it seems. Someone will win out but the story is still being written. Empty pages to fill before we know what's next. The bears can breathe a sigh of relief but nothing more. Now it's their turn to be clutch and we all know how clutch they've been. Doesn't exactly make you feel good to see them up at the plate with the game on the line. they have their chance now. Will they seize the moment? We'll know soon enough.

So now we focus on the ISM Manufacturing Report out thirty minutes in to the trading day tomorrow. If today's Chicago PMI is accurate, it won't be pretty. A number that is supposed to be close to 52 came in at 47.6. A nasty contraction, for sure, and completely unexpected. If the whole country saw this type of contraction, then the number tomorrow will surely be well below the 50 area, which is where the break-even number is. The market is only expecting a number in the 48's, which shows that things aren't moving along very well. If, by some chance, we get a number better than expected, then today's failure above 1947 will be a thing of the past. Anything still goes here. The market hasn't been selling bad news very much these days.

Just last night, China announced the loss of another half percent from their reserves. A country headed for disaster if that doesn't stop soon. Their market tanked, and so did everyone else's. Well, we tried to fall hard, but wouldn't have anything to do with it. The S&P 500 was down twenty points last night. All recovered by this morning. When the Chicago PMI came out the market yawned. However, we did finally sell decently hard late in the day. If the number is really bad tomorrow, it will be interesting to see how the market responds. Is bad news still bad news? Does it matter? This market is so fairy tale. Again, only if the bears can create a large gap down that runs lower can we say the breakout failed. Until then, keep an open mind and a tight wallet.

Folks, this is a very tough, and complicated, market that begs for lots of cash. Don't get aggressive as the market meanders about. Both sides have an opportunity here. The bulls looked strong, but two tails at the breakout isn't good action. So relax on playing too many longs. In addition, two leading sectors continue to massively under perform. The financial and biotech sectors are miserable, to say the least. They need to firm and show strength. They're not. At least for now. Banks aren't happy about all the global bad news on the economic front. Bad for higher rates. Banks want higher rates. They're not in the sweet spot right now. Keep an open mind, but recognize this market is a nightmare for traders. Cash, most of the time, is the way to be playing.

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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