After months of the market steadily grinding higher we finally had a pullback that lasted more than two days. That pullback is over but I don't believe this means that we are back to a steady grind. There should be two way action even in the case where the market manages to work its way higher over time.
There are major differences between the market environment coming into the year and current environment. Coming into the year market participants were positioned in a "risk off" manner. Every pullback was bought by underinvested market participants. While investors have turned cautious in recent weeks they are not in "risk off" mode and there will not be the same demand there on every dip. The first few months of the year are seasonally strong while we are now entering more neutral seasonality. Europe was not an issue earlier in the year as LTRO kept sovereign spreads in check. This is no longer the case.
I believe this means that we will see a two way market where one can sell overbought and buy oversold. Currently we are very short term overbought but would get a better overbought reading if the market is strong this week. A better overbought reading would arrive at the end of this week or early next week if the market remains strong.