Same old thing, folks. I could stop the newsletter right here, because, in truth, there's not much to say or add to what we already know. The market had a huge two-day move up off the fiscal-cliff settlement, and now it's digesting that move by forming a handle that may last a lot longer than anyone would like it. It normally takes time to digest large moves whether it's up or down so to expect another large move up from here at this moment in time is probably wishing for something that's not coming. There is no way to know how long the handle will last, but a few weeks is usually the minimal amount of time needed.

Of course, there are no rules in place for the length of time needed. The market could make the move higher now, but the odds are against it. It's probably more of a grind for now. There's always the chance that this whole thing fails if the handle lasts too long, because, as we head into February, the news we'll be hearing about every day will be how the two political sides are going to deal with the impending debt ceiling headache. The bulls will need to get this taking another leg higher by probably no later than the third week of January. All in all the news is good technically, so patience and we will likely see another attempt higher that could take us into the 1500's. Time will tell.

The smaller headache beginning to take shape is sentiment, although it's not a problem as of yet. We have the bull-bear percent at 27% more bulls, the highest level in quite a few months. Once you get to 30% more bulls you have the red flag go up. When it gets to 35% you are in real danger of a very strong correction. At 27% and rising, it may not be too much longer before we top out in the market, probably from the lower 1500's, but we shall see. Just when the masses get nervous about missing the rally the market will top out from too much optimism for the short-term. Sentiment is not a longer-term sell signal, but it is a short-term one when it gets to extremes. Not there yet, but working our way towards too many bulls. Another month or so should about do it, as long as the market doesn't collapse between now and then.

If we can take out 1470 we should be on our way to the lower 1500's. But the debt ceiling crisis worries me more now than the fiscal cliff did. I'll tell you why. The Republicans really gave up their beliefs on that one and you can bet they won't give an inch regarding the debt ceiling. If that turns out to be true, things could get extremely nasty. With the bull-bear percentage high, and the market up quite a bit ahead of this potential crisis, things could get very ugly. I get the bad feeling that this one won't get settled in the proper fashion or within the right time frame. I felt convinced all along the fiscal cliff would get solved. I get the feeling this one won't. I hope I'm wrong, but the Republicans are not giving in on this one, and my gut says the Democrats won't either. Before this is done the market could pay a heavy price. I hope I'm wrong. We shall see.

For now, we watch with good support at S&P 500 1440 and with strong resistance at 1470.

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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