This does not mean that things look good here and that we should start loading up. Not at all. It means we should have a small rally, but that’s about it. We should ultimately test lower again, and if that move down brings about strong positive divergences from low oscillator levels, then we can feel better about taking on a new play or two. With the market moving lower early on and then extending down as the morning went along, it looked like things might get out of hand. But these pullbacks often look worse than they really are in terms of how it set up technically. Selling off 70 RSI’s on both the daily and weekly charts can seem scary, but you know it has to happen, and thus far, it’s not even close to being out of the ordinary.

As the day went along the 60-minute charts got quite compressed to the downside on all the oscillators, especially on the MACD’s. Levels where you almost always rally from, and thus, the rally off the lows as the afternoon wore on. Keeping in mind that we’re still in a bull market, when the short-term 60-minute charts get oversold, you usually find a way to get things moving back higher as time moves on, and today was no exception. The Nasdaq hit that gap support I’ve spoken about at 2808. That level was actually the day’s low, and from there things really shot back up. Those gaps are strong and provide solid support to the markets. Bottom line is we got an oversold rally off the short-term charts, but that doesn’t feel like the bottom yet. I think we need one test lower to set some positive divergences that can be bought.

The market didn’t clean up today on the advance-decline line. Normally you get a big a move up off the intraday lows. Did the reversal day clean up the advance-decline line? Not at all today. So it tells me we will still need another move lower in time to set things up better for new long plays. You want to see a gap down with poor numbers on the advance-decline line in the morning end up with a hollow candle with more stocks up than down. That tells you the reversal is “clean” and that we’re likely to head higher for a while. That didn’t take place today, so from a technical perspective, any short-term rally that occurs from here will likely fail in short order. It’s best to be patient, and wait for the right internal technicals to take place, before making any new purchases. Always about appropriateness, and we just don’t have that today, even though the Nasdaq, the forth leader of this market, made a nice reversal off the intraday lows. We’re not there yet folks.

The commodity stocks, the world where the highest froth lives, is the area of the market that’s taking the biggest hit lower. (Such stocks as SPDR Gold Shares (GLD), United States Oil (USO), iShares Silver Trust (SLV), Goldcorp Inc. (GG), Amarin Corporation plc (AMRN) just to mention a few.) India and China have started rate hike cycles, India aggressively so, and maybe that’s starting to quietly filter down to the commodity world of stocks. They’re sure acting as if they’re really unhappy. They could also be selling from a distance, which will leave Mr. Bernanke with no choice but to raise interest rates rather shortly, even though Mr. Bernanke himself has not hinted at that in any big way. There are some extreme P/E’s on those stocks, so it’s no shock that when it comes to selling off, those are the stocks that take it on the chin the hardest. Technology and commodity stocks really have ridiculous PE’s, so that’s where the shorts will attack when they get aggressive. Froth leads up and down at all times in all types of markets, so when a down move comes along, you shouldn’t be surprised that these stocks really take a beating. Know this for the future.

The Nasdaq sold down to 2808 today, which I have pointed out as strong gap support for the short-term. Gaps are where the retail traders, and often the big money, will set up shop to buy when things have unwound sufficiently enough. The Nasdaq has sold quite a bit off the top, thus the 2808 level held, although I think it has a decent chance of being taken away by the bears in the days ahead to unwind things further in this market. With sentiment issues totally out of control again here, it seems likely. Bulls are now at 54.9%, while the bears are only at 16.5% for a nasty spread of 38.4%. Not good numbers for the bulls, thus over time, we will need to unwind things back down to create fear and get those levels to well under 30% so the market can have enough energy to rock higher. 2775 is good support over time below 2808.

One day at a time as we try to unwind those charts further. If we get a positive divergence on the 60-minute charts on the next move lower, we can buy a play or two for a bit, but nothing aggressive for now folks. Just the way it is in the short-term.