Last week, the market nearly reached new heights.  Volume was heavy the previous week, the action was positive and technicals were positioned for bullish signals.  What happened?  Apparently traders weren't ready for a "primetime" breakout of a larger trading range.  Going back to last November's election breakout, the S&P 500 has been confined to a tight range of 1140-1230 (4% on either side).  The Nasdaq has been confined to a wider range of 1905-2191 (7.5% on either side).  So, for the last eight months the market has been rangebound.  Going back further, the S&P 500 is up 7.5% (where the bulk of the gains came in the 4th quarter of last year) since January 2004 while the Nasdaq is up 3%.  Disappointing if you are a bear, equally disappointing if you are a bull.  How are we to interpret this action?  It's important to understand the context of a rangebound market and what a breakout (or breakdown) looks like.  Rangebound markets generally move with the ebbs and flows of information without any particular bias to direction.  However, breakouts/breakdowns can be witnessed by an extreme volume move as the market moves over/under critical resistance/support.  Did this happen last week?  I would say no.  Looking to a weekly chart, markets have just fallen back into the lower portion of a tighter range.  Certainly, we acknowledge volume was a driver this week.  As a bull, we would like to see lower volume selling.  But it appears this may be a normal "flushout" of excess buyers prior to the next leg up.  Again, looking to the weekly charts several bullish technical signals are still in tact.  MACD is still strongly positive and stochastics are still driving higher.  The weekly S&P 500 is just above its lower 20 period Bollinger Band (around 1186) indicating that further downside is limited.  Additionally, the market has become very oversold on a short-term basis...also indicating a bounce is imminent.  So, are we trying to justify any bullish moves here?  No, we are not.  It's just a matter of being objective and looking at the signals with an unbiased perspective.

There's been alot of "chatter" lately about this market action.  Several media outlets have been "screaming" about further selloffs, corrections, etc.  It's important to keep this within the context of the information being disbursed.  In other words, let's be careful what we're hearing.  Read the market signs and interpret the action without any unbiased opinions.  We all know that psychology is heaviest when markets are in a quandary.  We need more 'calm down' talk when we're confused.  Panic sets in just as easily as exuberance.  Uncertainty about markets and direction has never been more sketchy.  Data at every corner can move markets in either direction.  Higher oil prices, a potential housing bubble and rising inflation amidst an economic slowdown can twist and turn this market in all directions.  Make sure that bottle of Tums is full, but stay focused!

Price Headley is the founder and chief analyst of BigTrends.com.