Overheated market gets a pullback

This has been a atypical rally from its start in terms of breadth trends.

The rally started without breadth reaching extreme
The rally started without a big 300 plus up day on Market Monitor
The secondary indicators never moved much during the rally.
It reached extreme with only 910 stocks up 25% plus

Bulk of the gain in the indexes in the rally happened in just 2 days. After that the daily range contracted and the market slowly crawled up.

In recent days some hints of froth started showing up. IPO started flooding the market. Large buyouts started happening. Merger activity picked up. And handful of stocks started making big one or two day moves e.g czr, trla, Z, spwr, angi etc. But we did not see much of Lottery Ticket moves.

Yesterday marked the first 300 plus day to downside on breadth . As I said in last few Daily Market reports that the benefit of doubt is in bulls favor till we see a big negative day. Yesterday was first of those.

Typically such down move leads to dip buying and another attempt at retaking the high, if the attempt fails and we get another 300 plus day then that will be confirmation of more downside.

The underlying setups on individual stocks as of now look good on large number of stocks. There are only handful of stocks showing topping patterns. The implication of that is we might get a shallower 3 to 6% kind of pullback at this stage.

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