The market is experiencing some run-of-the-mill consolidation action Tuesday. It is quite mild, so far, with breadth running almost exactly even, but many of the best-performing stocks are seeing some profit-taking. Small caps (iShares Russell 2000 Index (IWM) ) are lagging, while banks and financials (Financial Select Sector SPDR Fund (XLF) ) are leading. Apple (AAPL) is trading around flat and is a good indicator of overall market sentiment.
Market players too often read too much into the normal ebb and flow of the market. Part of that is because of the way that computer algorithms have changed the price action. There is a tendency toward sharper spikes and abrupt reversals, because of computer algorithms. In the past, it was shifting of human emotions that caused the bulk of stock movement and it had a more natural flow to it at times.
Action, like we are seeing right now, is bullish in several ways. First, it helps charts to develop in a healthy way. Good charts have support levels and support levels develop through consolidation and basing action. A strong base provides the foundation for another move higher. Many charts have developed nicely in recent weeks, but now they need to reset and develop new entry points.
The other benefit of corrective action is that it helps to shift sentiment. Markets tend to move best when there is a high level of skepticism. Nothing tends to create more worry and concern that weak price action. Suddenly all the folks that were worried about missing out are now more concerned about buying at the wrong time. Dip buying is always much easier in theory than in practice. It is a great idea when stocks are going up, but when stocks are going down then it isn't nearly as easy.
This is very routine price action at this point and there isn't any reason to read too much into it. It is always possible that it could develop into something dire, but currently, this is more healthy than negative.