It took a long time to get rocking, but the bears have finally made a move that needs to be respected by everyone who plays this silly game. The large move lower across the board that has taken those key 50-day exponential moving averages, and put them in the rear view mirror on the S&P 500 and Dow. The Nasdaq is still playing with it, but the other key indexes are all below now, and did so with some force.

The Nasdaq should forcefully fall below the days and weeks ahead. There was technical damage created by those bears with two recent gap downs. The second gap down yesterday had some real power behind it. A large gap down and run that closed on the lows with the Nasdaq down nearly 100 points, while the S&P 500 was down nearly 40, and the Dow was showing losses of a bit over 300 points.

All key levels of support that are gone allows these indexes to now back test them. It's likely they'll fail on those back tests, but don't forget we're in a bull market, thus, you need to see the tail off the back tests that suggests failure is in the cards for the bulls for a while to come. With today's move lower early followed by an oversold bounce you can see the bears mean business here and are getting braver than they have been in longer than we can remember. For now, we respect the move lower by the bears but need another strong move down over time to get the Nasdaq well below the 50-day exponential moving average. Once they're all well below the 50's then you know as much as you can that the down trend means business and needs to be fully respected.

Now let's not forget what type of market we're in. Do not lose sight of the reality that the bull market is still very much alive. Strong pullback's, or even corrections, don't mean the end is upon us with regards to the bull market. It can and will feel like a bear market at times. Surely yesterday felt like a bear market, but that's the whole point of these selling episodes. They're intended to create fear and misery, so that the froth and greed can be wrung out of the market. It's the massive froth and greed that's causing the selling in the first place. The market needs to have some misery attached to it, so that the bulls start to walk away from the game.

They need to get emotionally involved with fear, and that feeling of giving it all up. The deeper that emotion gets, and the sooner it happens, the better off the bulls will be with regards to the bigger-picture bull market. The bull-bear spread has been hovering around 40%, or higher, for nearly three long months. Ouch in a very large way, if you're a bull. It's just not sustainable, so as the struggles the number will get better and better. Froth and greed will be replaced with uncertainty, and fear.

It's the magic the bulls are looking for, even though they don't realize it yet. The market will need to struggle for a month, or longer, however, to get where we need to ultimately go. No way to know for sure how much the low-rate cycle will affect the time needed but we need to get out of the 30's and in to the 20's on that spread if not lower. It won't be a crash down. Bull market lives. The process could be slower than we'd like as there will be lots of rallies, but the fear process is at least beginning to some degree.

When understanding when a market is moving from one type of process to another, look for changes in the trend that has been ongoing for quite some time. One clear one was losing the 50-day exponential moving averages on the key index daily charts. Another quieter one was watching the degree of oversold we hit on the shorter-term sixty-minute monthly charts on those key indexes. The Dow was down as low as 12 RSI today, before finally bouncing. Anything approaching 30 RSI's in the past several months has meant rebound time.

To get that level of oversold is a powerful change of trend. It's also a bit too intense, and should allow for a bit more rebound soon, but seeing these types of changes in the recent trend says that things aren't very good for the bull's short term. Also, the market is now struggling to take back lost gap downs. It seems to be only able to back test, before falling back lower. Bottom line here, folks, is there's enough evidence overall to tell you that extreme caution should be the way you approach this market for now. Slow and easy from here. Very light exposure to all cash are nice ideas.

Have a great weekend!

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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