With nothing more than a passing glance it would be easy to dismiss Tuesday's slight pullback as predictable action. Stocks were frothy through last Friday thanks to the market's up 10% just since its mid-March low, and ripe for some profit-taking. A stall could have been expected here.
Except, there may be more to the sudden slowdown here then there seems to be on the surface.
Take a look at the daily chart of the NASDAQ Composite below. Specifically, take a look at where the composite peaked on the first two trading days of this week. The high's been right around 12,226, where the NASDAQ topped out on Friday as well as where it peaked in early February. There may be something important about this level that won't be easy to clear.
That's not the only red flag currently waving, however. The S&P 500's daily chart below shows us another reason for bearish concern. Or more specifically, the S&P 500's volatility index (VIX) does. It's clearly finding support at the horizontal level near 18.0. If it can't move under that mark and instead pushes up and off of it, that ultimately works against the stock market.
[1]
In this same vein, the NASDAQ's volatility index (VXN) looks like it's finding a major floor here as well, at 23.6.
[2]
This is hardly a guarantee that a pullback looms, and even if it does, it doesn't have to be a major one. Most of the indexes are above all of their key moving average lines, which should serve as support in the event of a dip. Indeed, that might be the best thing for the market at this time… a lull to cool off an overheated rally so it can regroup and start working on the next leg higher. Pacing is everything. Also bear in mind it's possible for the volatility indices to simply move sideways without going higher while stocks gain ground. And, more broadly speaking both the NASDAQ Composite and the S&P 500 are in technical breakouts anyway.
It never hurts to consider all of the distinct possibilities though. Right now, there's a distinct — albeit slight — possibility that the market's running into a technical headwind that isn't easily seen or readily evident.