Let's Take a 'Pause' to Examine the Health of the Market

When the market has been in a strong uptrend, there is often a tendency to read too much into minor weakness. Mainly, it is due to hopeful bears who are looking for relief from the recent pain. We will often hear that it is the start of the long-awaited topping process.

The reality is that "pause" days like we saw Thursday are not only healthy, but bullish. Stocks need to rest and reset. The tired bulls need to be replaced by some fresh blood and charts need time to develop.

The action was a good example of a "pause" day. There wasn't any rush for the exits, but momentum slowed and breadth slipped steadily. There was some late buying to take the indexes off the lows, but it was refreshing to see calmer action, rather than another day of chasing.

The dip-buying this morning was quite impressive and the pockets of speculative action are not drying up. Some of the overconfident day traders likely had a tough day, but that is good news and helps to give us some better movement in both directions.

Friday is quadruple-witching day, and there is a massive amount of options expiring. There should be plenty of pinning action into the close, which means the index movement won't be very indicative of anything.

Also, keep in mind that the Russell indexes are "reconstituted" at the market close on June 26. This usually produces some of the biggest volume of the year. Preliminary lists of additions and subtractions will be updated Friday.

There is much going on out there, but, most importantly, the negative concerns still don't matter much. Covid-19 cases continue to climb, but there is little concern in the stock market right now.

Have a good evening. I'll see you tomorrow.

At the time of publication, DePorre had no position in the securities mentioned.