Stock Market Bears Get It Done......

By: Jack_Steiman

Finally!! The bears took the Nasdaq and S&P 500 below their key-support levels of 4084 and 1770, respectively. Losing 4084 allowed the bears to say they finally took out the 50-day exponential moving average with some real force. It's what you need to see. The only ingredient missing is the follow-through. That would mean a large gap down in the very near future. It would be best if it was tomorrow morning, but if the market has a small-inside up day, that would be acceptable. However, very shortly from here, the follow-through gap down will be necessary in order to put the final nail in the coffins of those pesky bulls.

There are always two steps to a true breakdown. Step one is breaking below key support, with the second step being the follow-through. Without the follow-through, you're not getting the necessary confirmation that says the trend change is now complete. Changing from bull to bear is never easy. It takes a long time to get the bulls to stop trying. They were very used to getting what they wanted at the slightest drop of selling, thus, they were trained to keep doing so. Only after a prolonged period of no sustainable upside did they finally give up.

That's normal protocol. It really is like turning a huge boating vessel. It takes a very long time to make it happen, with lots of head fakes both ways, until the nail is finally driven in and can't get removed by the bulls. To say there are no more excuses from here is the biggest understatement I could ever make here. There is literally not an excuse left for the bears. It's time to follow through soon, and let the bulls know their time is up for a while, and that their complacency has come home to roost. The bears are almost home. One last step to go and that bull-bear spread will be well on its way to getting back towards 20%. It was just 46%, so it's good to see the process underway.

Carnage is being done across the board here. There really is no place to hide. Some stocks that just went up strongly on their earnings are getting hit hard now. Google Inc. (GOOG) is one example. Those who chased late last week are feeling the pain today. Many other areas of froth have been taken out and crushed. There are always exceptions to the rule, with stocks such as LinkedIn Corporation (LNKD), Twitter, Inc. (TWTR), Facebook, Inc. (FB), and a few others. You never know when they'll get hit as well.

When utilities seem to be the best place to put your money you know it's time to surrender, and when the bull was raging on, money always rotated to some area of the market to keep price from pulling back all that hard. That game is now mostly, if not completely, over. That's one sure way to recognize the tide has turned. Now the super defensive areas that received absolutely no love in the bull-run up are now getting their day in the sun. The usual areas that had the run up are now being ignored, even when they get oversold. When they bounce, their bounces are smaller than they've been in a very long time.

The selling once again follows shortly thereafter. All of this is telling us to play defensively from here, to keep things very light, and be mostly cash. Markets need catalysts when changing their stripes. We got the first push down when Japan's manufacturing showed recession. The market broke down here today when our ISM Manufacturing Report showed a huge drop from near 57 to today's reading of barely over 51. That's a tremendous drop in economic activity. It's amazing how the market always finds its excuses when it really needs them.

To break down, we needed some further bad news in this country, and today the delivery was made for the bears. With the breakdown, we look further out to see areas of good support. On the Nasdaq there's gap and price support horizontally at 3970/3975. Below that we see support at gap at 3875. For the S&P 500, we have support near 1730/1735, and then 1708, or the 200-day exponential moving average. Now at 4084 on the Nasdaq and slowly dropping, and 1770 on the S&P 500, respectively, are now the key-resistance levels.

Keep things very light here. The market is in trouble. It'll take time and patience on everyone's part to get through this properly.

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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