Only the Nasdaq out of all of the major index charts is now still above its 20-day exponential moving average. It's above by just a few points thus its hanging by a thread. Not likely to hold. The S&P 500, Dow and total market, the WLSH, all lost their 20-day exponential moving averages today and did so on solid volume and a very poor advance decline line. The selling was real. The confluence of overbought daily and weekly charts across the board along with negative divergences on the daily charts and finally some poor sentiment conditions took over today. It was about time. The market was more than due for a beating but simply refused to sell off day after day.

Each day we'd grind up and yet we'd create deeper and deeper negative divergences. What, I was asking myself, was preventing this market from falling sooner? This bull market has been unique and special in its ability to hold up but after a while you ask yourself, what is keeping this thing up? Whatever the reason was, it finally took until today to really sell off and stay sold off. It's the exact medicine this market needs. If the market had closed back in the green or had printed hollow red candles meaning on balance buyers once we opened up for trading, it would have delayed the inevitable. This market needed to sell off and sell off hard and we finally got that day today and this will at least set things up once the selling continues deeper still.

The market gapped down this morning, but as usual, the buyers came flying back in and totally filled the gap down. Nothing bearish there. Once the indexes tried green a little bit the sellers came back in. We started to slowly slip down but it looked harmless and didn't seem to tell what was about to hit. As the morning wore on you could feel the erosion. feel the market giving it up step by step. You looked up and suddenly the Dow was down 190 points before the next strong rush up hit bringing the Dow back to minus 100 points. From there the market started its slow move back down for the rest of day although there was some deeper acceleration in the last thirty minutes which allowed the markets to close on their lows. The Dow down over 200 points. The Nasdaq down 51 and the S&P 500 down 28 big ones. Nasty. This is what happens when the rubber band snaps. Nothing out of the normal range of bull market behavior when things come together to sell things off due to what I talked about earlier in this letter. More selling is likely overall in the days ahead.

We finally lost the 20-day exponential moving averages across the board although the Nasdaq found a way to close a few points above this important support level. 2471 was the close and 2468 are the 20's. The Dow, S&P 500 and WLSH all closed below, the S&P 500 a full percent below. The selling should continue and it would be normal to test the 50-day exponential moving averages at some point in the evolution of any bull. Those levels being 2396 on the Nasdaq, 1167 on the S&P 500 and 10,812 on the Dow. The S&P 500 also has very strong horizontal support at 1151. It would be great to get a full test of those 50-day exponential moving averages. A breach would be even better and scarier. My belief is that we will have another strong bounce off those 50-day tests and then we'll see what the market has left in its bullish tank. The message of this market is we need a bit more time before we can think of buying again. Only a negative divergence on a bounce off the 50-day test would warrant or justify shorting. If that sets up we will do it.

We're only about 2% away from fully testing the 50-day exponential moving averages. How fast it has snuck up upon us due to the fact that the market has been so strong, the 50-day exponential moving average has been moving up rapidly to meet price thus it's now not that far away. This is the first 50-day test in quite some time should we get there and thus it's highly likely we'll get a very strong bounce from there. How we move up on the oscillators on the daily charts from there will be very telling indeed. That move will tell us whether this bull market is about to end or whether it will extend further. We need to take this one day at a time. Please go slow here and I would advise no new plays for now. Let things set up in time

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 s

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