The market is starting to show signs of a shift in character but that doesn't mean that the indices are going to drop sharply. There is action that looks like we are transitioning to another market stage after the big run up but whether that is just some trading range action, consolidation before another leg up or a pullback is the issue.
It is easy to see that this recent uptrend is slowing. There is a high level of complacency but also more choppiness and fewer potential catalysts. You can make a bearish argument but there more likely outcome is likely to be a mix of action.
This transitional action is one of the main reasons that I wrote this morning that small caps are going to be more intriguing at this point. The many folks that have outperformed in this strong runup still have cash to put to work and they will be more likely to engage in stock picking rather than market timing to put it to work.
The big challenge of trying to short an overbought market that is hitting resistance is that the excesses may not be corrected by a drop in the indices. The market may churn and go no place which will ultimately have the same impact. Quite often the indices stay sticky to the upside when you think they should be correcting which makes it tough for index plays but may be a positive for individual stock picking.
While the indices look like they may be in for some short term struggles that will likely be a positive for individual stock selection. There is some sort of transition brewing but we are going to have to be patient to see how it manifests itself.