The S&P 500 fund (SPY) has bounced back into all-time high territory, but it is mixed action out there with breadth running around 2,900 gainers to 4,400 losers. Small caps are lagging and what is most notable on my screens is that speculative trading has slowed.
Healthy markets take periodic rests, which allows them to rest and push higher. That might be what we are seeing, but we always have to stay alert for a change of character. If bounces start to fail, there are some lower lows, and if the market closes weak, then it will be a sign to increase caution levels.
I am constantly preaching that it is better to react to changing price action, rather than trying to anticipate it. That sounds simple, but learning to react in a timely manner takes some effort. It is important to watch the action carefully and try to identify when a change is meaningful. There will be many "false positives" along the way, and it is very easy to overreact to action that really isn't meaningful.
Big cap names are holding up the market Tuesday, as the speculative action cools off. Breadth illustrates the narrowing of the action and we need to watch that. When this market suffers a meaningful selloff we will see it reflected in poor breadth. Correlated selling is what will produce deeper corrective action.
I'm taking a bit of a break now, and am not trading very aggressively. Just like the market, traders need a chance to recharge their batteries every once in a while.