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Relative to the strong rally off last Monday’s gap down, the broad market is taking an expected pause this morning. There is not much to do, short-term, with this type of action. A few days of backing and filling after the sharp rally from the false breakdown last week would not be the worst thing in the world for bulls looking to becoming aggressive again. However, that scenario is far from a sure thing. We are running directly into a seasonally notorious period for stocks, and first quarter leaders like AAPL CMG SBUX are looking increasingly like trading vehicles at this point rather than sustained momentum swing holds.
For another meaningful leg higher in the market, I still believe we would need to see a rotation into the financials, energy, and materials sectors. In addition, the real estate, homebuilder, and biotechnology stocks would likely continue higher in their stealth bull runs. For now, though, the market is taking a break after last week’s riveting rally from a false breakdown. As far as general levels to watch, bulls are looking to recapture and close above 1400 on the upside, while bears want to attack the low-1390’s to try and breach it.
