The gap down had set up for a big bearish move lower, but the collapse never appeared. Instead, lows held as support. On the flip side, an attempt at a rally couldn't get off the ground, but markets were able to do enough to register a close above the open.

The S&P closed with a spinning top below support. Watch for a strong ‘sell' signal in the MACD as other technicals remain bearish.  The only positive is the strong relative performance against the Russell 2000.

The Nasdaq experienced a big gap down yesterday, and today offered a brief move to test the gap. Bulls need a gap higher to leave what could be a very good bullish ‘island' reversal, combined with a ‘bear trap'. Can they do it?

However, the Russell 2000 is knocking on the door of the January spike low. Unlike the Tech and Large Cap indices, it had difficulty mounting a bullish advance and the outlook for tomorrow looks more bearish. Should the latter come to pass it will hurt all indices.

Tomorrow is a toss up between a bearish break-and-run in the Russell 2000, or an ‘island reversal' in the Nasdaq. Sentiment lies with bears, which marks a significant level of danger as markets toy on the borderline between a bullish correction or a bear market.  Further losses this week would suggest an acceptance for a new bear market, and place a target for a 40-60% loss from December's highs.