Stock Market Sentiment Playing Out perfectly.......

Stock-Markets / Stock Markets 2014 Feb 06, 2014 - 06:06 AM GMT

Just a few weeks ago we were at 46% on the bull-bear spread. We had spent numerous weeks trading with a number above 40%, which is extremely rare and unusual. You know it can't last, but you never know when it's going to snap. We finally snapped, and look where we are now. 28.5%. How sweet is that! The market is doing its dirty deed to get folks extremely pessimistic. It had to come, and now it's here. We're happy about that to be sure. Now we need to get it lower. Teens would be a thing of beauty. I think it'll happen, and it won't take too much longer. Another 2-4 weeks of poor action, and we'll be looking at a spread below 20%. That would be music to the ears of all the bulls out there. The only problem, of course, would be that the bulls will be too afraid to do any buying when the right time is here. They'll be fearful of the market that has allowed the spread to get under 20%.

With fear being the greatest of all emotions, with the stock market, not to mention real life on many levels, it will take a very long time for the bulls to get over their fears about many never coming back, after getting crushed throughout the correction. Froth stocks being the culprit as they have been slaughtered, with the masses getting stuck in them as usual. It never fails. Wash, rinse, and repeat sadly. It has been this way for forever, and probably will remain the path of least resistance for decades to come, if not longer. Sentiment is getting crushed folks. Applaud it. Don't get too frustrated over what's been taking place in the market. It's healthy and necessary. Now give us another month, or so, of overall bad performance and the market will be close to its next strong move higher. A sustainable move at that.

With the Dow down nearly 1,200 points, since January 1, we may be seeing a pause in the action to the down side, but I wouldn't take that to the bank. We could just keep on falling, and falling hard, but with the Dow now down to the 200-day exponential moving average, and with its RSI hovering at 30, it would make sense for the bears to take a quick break to catch their breath. We've had three days of playing with those 200's on the Dow, but after a small close below it on Monday we've flashed long tails from below the past two days.

That should mean the bulls are catching up a bit to the bears, but again, I wouldn't bet heavily on that being the case. It just makes sense, but when corrections are under way they can gain huge momentum and stay oversold even on the daily charts. My guess is a bounce, but we shall see. If we do bounce, the energy for sustainable upside isn't there beyond a couple of percent. The S&P 500 could back test 1770/1775, or even a bit higher. That's again, no guarantee. The Dow could move up a few hundred points, but that won't be easy. Nothing will be easy for the bulls for quite some time, but in the very, very near-term I'd go a bit easy on shorting. We shall see.

When it's time to buy heavily again at some point down the road the majority of you won't want to do it because you'll be thinking that we're probably in a bear market. And who knows, maybe you'll be right. But I don't think that'll be the way it truly is. The emotion of the game can keep the majority out of the good times when it's time to go aggressively long out of fear, but let's try not to let that happen when the time arrives. It won't be easy, but let's try to capture as much as possible someday down the road.

For now the only way to play is with very little aggression. Nice and light is the only way.

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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