We were overbought starting things out yesterday. The market was close to the top of the range or close to getting through the 50-day exponential moving average at 1119 S&P 500. Overbought at resistance means you're not getting through short-term. The market needed to pull back or at the very least, move laterally so as to work off those overbought 60-minute charts.

The past two days have seen the markets try to break lower below 1105, the recent level of major resistance, but the bulls have not allowed the S&P 500 to give up that key level. Three attempts by the bears over the past two days, but the bulls held the fort. A few times it looked bad for the bulls but they kept finding a way to hold on to 1105.

We gapped up a little in the morning and spent the rest of the day riding between 1105 and near 1119, the full range currently in place. The market did unwind, however. The 60-minute charts are no longer overbought. Not at oversold yet, but no longer overbought, and that's critical for the market to be able to move higher once again. This opens the door to that possibility. The bulls have to feel good about the way things ended up today. The Dow was down nearly sixty points with one hour to go and finished in the green. The Nasdaq wiped out a 14-point loss and the S&P 500 held at 1105, closing well above at 1116 and slightly in the green.

Now for some reality that will likely have some influence down the road a bit. The economy in the U.S. is in terrible shape. We had a huge rise in jobless claims this morning, exceeding the numbers expected by a huge margin. Out of the blue came this increase that took everyone by surprise. Yesterday we had terrible numbers on housing. Then during the day we had the Philly fed report and it was a nightmare. Just awful numbers. It showed that the economy is basically dead.

May slowed down far more than anyone thought possible. Can you say the stimulus has run its course? Yes, you sure can. Housing, economic growth, jobless claims all horrible and all coming in to the market within two days time. Add horrible earnings thus far from Best Buy (BBY) and Fedex Corp (FDX) and you can start to get nervous now, if you like, about where this economy is headed. It is not a pretty picture. If this continues much longer the market has no chance to move appreciably higher once this rally runs its course to create a right shoulder.

The market is trying to create an equal right shoulder from the January high at 1150. When markets get their heads down it's very tough to stop that train. The news that has come in over the past two days regarding the economy has been horrific and, yet, it has done nothing to stop the bulls from trying to break through the 50-day exponential moving average at 1119.

We should have been slaughtered from a fundamental perspective over the past two day, but the bears couldn't even get back below 1105. Why? Because it wants higher short-term overall to create a more symmetrical right shoulder. It's just the truth of things. It has nothing to do with options expiration. It has nothing to do with reality. It does, however, have everything to do with the pattern in place. Soon bad news will be treated as such. For now, the bulls get a break from the bears. If the reports continue to stink, they won't get a free pass further down the road. The party will end for the bulls. The economy better get rocking and soon.

It's really about what gets taken out first, 1105 or 1120. Actually, I will give the bulls a bit more slack. With the 20-day exponential moving average curling up to 1098, we'll let that be the number although it wouldn't be wonderful if they lose 1105. So let's say 1098 is critical support and 1119 is critical resistance. Whichever breaks first should allow for a bit more of a directional move short-term. It's a tiny range and won't last long so you'll get your answer soon enough.

Fundamentals say we lose 1098. Pattern says we gain 1120. Personally, I think we gain 1120, but that will be the last move up before a more sustained move lower takes shape. That move lower will tell us more precisely where this market is for the medium to longer-term. Watching the oscillators will tell a big part of that story, so we'll let that unfold as it needs to and learn from it. No point really trying to guess what'll take place. We'll let the market tell us and move forward from there. As usual, very slow and cautious here with some small, long exposure.

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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