I can simply say the market is toast and stop the rest of this note, but let's explore what's taken place over the past few days. Let me try to lead you to where I think we're going. We know that the long-term monthly charts have been flashing trouble for quite some time now. The Nasdaq monthly chart had been overbought with a 70+ RSI for two, full years. Red flag number one with gusto.

Froth had been off the charts for nearly two years as measured by the bull-bear spread. Valuations utterly ridiculous. Laughable to be blunt. Five days ago the market saw the rubber band snap. The Fed has been keeping it stretched out far longer than this writer thought humanly possible. The market was begging for lower prices to unwind all of this, but simply couldn't find the excuse. China's devaluing their currency was a decent start, and then global markets rocking lower helped expedite things. Once the market started to sell, it never looked back as it took out the line in the sand at S&P 500 2040.

The fourth test was the winner. The truly stunning thing is how fast and hard it began to fall, topping out with a massive two-day thrust lower from Friday and today. The markets are massively oversold, but no one cares as margin calls are rocking in while the bulls can't get out fast enough. A long squeeze if you will to the down side. We broke through other support levels on the S&P 500 without even the hint of a fight from the bulls. The selling being the real deal. This is not just some random move lower that will "V" itself back to the up side and make the move down seem like a small, non-important event. It is a very important event that has changed the flow and look of everything we follow. The market is in big trouble. Make no mistake about it. This is NOT just a meaningless event that's going away. It is with us to stay, I believe, for quite some time to come. Buckle up as things will get tougher as time moves along for a while to come.

Today's gap down saw us lose nearly 1100 Dow points out of the gate. The move immediately bought back with power as the oversold conditions were such as we haven't seen, maybe just about ever. The short-term sixty-minute charts were down to roughly 0, yes 0. The daily charts were nearing 10 RSI's. Unbelievable to see those types of oversold conditions since we've been conditioned to see 30 RSI's immediately bought up, no matter what time frame we're looking at. Not now. The market will be attempting to stray oversold most of the time now, or at least quite a bit. You likely won't see any form of overbought in the near term. After rallying hard to get the markets near flat, the markets started selling again with some really nasty totals when all was said and done.

The Dow was down nearly six hundred points. The S&P 500 was down an amazing 77 while the Nasdaq was down 180. Don't bother telling me we closed well off the lows. The action was bearish and nasty. Sure, we can bounce, and we'll need to sooner than later due to oversold, but the trend is now lower. Make no mistake about that moving forward. Today's action solidified the down trend. 2040 is long-term resistance, but it's very unlikely we see that level from here for quite some time to come. The power of the downtrend is too vicious. We closed at 1893. Hard to believe we were just testing the top of the range at 2134. 1965 is now major resistance, if it can ever get back up there. So, today left a mark not to be ignored. Friday began confirming the down trend. Today solidified it for sure. There are some rough times ahead with big-rally days along the way. Catching that won't be easy, since oversold will stay that way for some to come.

Not much more for me to tell you, folks. The advance-decline line, along with every oscillator under the sun, has confirmed the trend change. The next question is whether we're headed in to a bear market or not. 1820 is the long-term, uptrend line that if broken could lead down to the 1576 breakout from way back when. We need to watch 1820 on the S&P 500 very closely for more information. We have seen how fast things can fall, so don't think it's impossible. 1576 would be a normal back test and would keep the market bullish. If we lose 1820 first, I would say the bullish trend is behind us for a while, but it can be established once again with a successful test of 1576. For now, we watch 1820 and keep things more than light. Cash is an awesome position. A day at a time here folks. I think I have done the job warning you about all of this for months, now, that risk was increasing and that you should keep things very light. I hope you followed that process.

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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