Stock Market Needed Selling......

By: Jack_Steiman

That's what the market needed and that's what it got today. Some selling that helped unwind things at least a little bit and every little bit helps when you have a combination of events that tells us the market could use a break. We had overbought RSI's on the daily index charts. We had elevated oscillators such as those MACD's and stochastic's. We had a high number of bull- to-bears coming in to this week. Some selling would help things on many fronts for the bigger picture bull market. This began last night when the futures were quite nasty heading in to the pre-market hours.

They improved some as the morning wore on but once open, the market fell quite hard, being down close to 200 points at the lows in the morning before recovering some as the day went along. This was a day where you didn't want to see the market go green because it would just shoot those oscillators and overbought conditions right back in to play. Sometimes a market needs a rest and today was one of those days. After an up-day yesterday the bulls were not able to follow through and to that we can be grateful for as it allowed some air to come out of the market. needed release for sure.

My hope was that the news from last week in terms of the down side action would allow the bull-bear spread to come in some. It was approaching a very dangerous level heading in to last week so it was important for some of that bullish behavior to be wiped out. The week started at 36.4%, and thus, was approaching the get out of the market 40% level. Fortunately the market did see some downward action last week and we also saw the bulls come in some while seeing bearishness expand a little bit. Getting close to getting back over 20%. The actual spread is now down to 32.3% more bulls. Not a great number for the bulls by any means, but a whole lot better than 36.4% and also thankfully we didn't head towards 40%.

The key is the action this week and today was a good start. A down day, which only adds to some deeper pessimism. That's what we want. That's what we need. A week full of disappointment overall would go a long way towards getting that number back below 30%, which would make this writer feel a whole lot better than he did going in to this week. The longer the market struggles the better the number will be, and remember, we don't need a deep pullback at all. If the market simply struggles for sustainable upside action for any period of time the bears rock in. If we do get a deep pullback, the number will drop precipitously, and the market would be in great shape from a sentiment perspective.

Look folks, you can't be taken by surprise if we fall a few percent further back to some strong areas of support such as key moving averages and gap. Markets feel one way for a period of time and then very quickly can feel like something else entirely. That's why the game can be so tough on people. Within a big picture situation you have to recognize what's taking place and not act against how you should. That said, it's not easy to behave the way you need to. When it comes to your money you can act out of fear without seeing what you need to, but that's also why I say that in environments such as we're in now, you keep it lighter and exercise patience.

The whipsaw is getting powerful. Up decently one day and then down just as hard or harder the next. Black candles and hollow candles abound. Very confusing. The market is more violent now, and thus, if you play too hard you will suffer the consequences. Every market changes, and does so quite frequently. Adjust to where we are in any given moment. This moment says easy on the long-side and easy on the short-side, if that's what you're in to. Be appropriate and remain patient. We all want to be aggressive all the time, but this game isn't meant to be played that way. The whipsaw up here says take it easy. Use weakness to buy if you do insist on buying stocks. Let the market accomplish its goal of unwinding.

Have a great and safe Memorial Day 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.

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