The Market Takes a Breath

 | Jun 11, 2013 | 7:50 AM EDT
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The most bullish aspect of the market Monday can be found in that old adage, "never short a dull market." Another was that the put-call ratio came in above 100% for the fifth session in a row, making it the sixth such reading out of the past seven trading days. In other words, folks are not piling into this as believers.

Most bearish was that the breadth could not manage to get positive all day, even though the Russell 2000 was in the green for most of the session. Also, the market seemed to stop dead at resistance, and could gather no more strength to push through -- a change in the pattern year to date. Since 2013 began, the market has never taken a breath at any low before heading back up. This time it's breathing, even though breadth is not so hot.

Let's just check in on a few charts to see the resistance that has stopped the rally thus far. The Dow Jones Transportation Average halted right at the underside of the uptrend line, as you can see.

The S&P 500, meanwhile, stopped right at the small downtrend line. This is important, because if it cannot bust through, this will mark the index's second lower high. Look at points A and B on the chart below, as those are the other two miniature corrections the market has seen this year.

The market saw very little resistance busting back up through the short-term downtrend lines but, more important, those pullbacks each lasted less than two weeks before the S&P crossed back over the lines. This time, we're already into week three. So I don't think the level of this downtrend line is a big deal -- rather, I believe a failure to get above it would represent another change in the market.

Then there's the financial sector. Financial Select Sector SPDR (XLF) also hit a second lower high. Again, this is worth watching, because in this case it is also a throwback rally to the underside of the broken uptrend line.

Keep in mind that the poor breadth has done nothing to help the McClellan Summation Index, which is still pointing down. The direction of this indicator tells us what the majority of stocks are doing -- so, in this case, most are still trending down. It will take a net differential of plus 2400, in advancers minus decliners on the NYSE, to halt that slide and have the indicator reverse to the upside. So we're still talking about at least two very strong back-to-back positive days.

Summing up, the good news is that the rally has not lifted anyone's spirits or gotten folks giddy about the market again. The bad news is that, given the poor breadth indicators, most stocks aren't acting so hot.


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