The comments below were provided by Kevin Lane of Fusion IQ.

As seen on the weekly S&P 500 Index chart below (with closing prices as at 7/7/09), the Index recently slammed into a convergence of resistance and a downtrend line (red and green lines). After needing a near 44% rally from the lows just to trade up to the aforementioned resistance area, it was hard to imagine the S&P 500 would just blast up through that level.

Add to the mix the fact that we recently entered a period that is historically weak for stocks and it makes sense why prices have corrected of late. As we have said a few times recently, the Index has most likely reached its high point for a while and is likely at best to trade range bound or realistically lower for a period of time.

We also suggested and continue to suggest that stops on remaining long holdings be adjusted/tightened and long exposure be reduced for the time being. Since the dawn of the markets most, if not all, bottoming processes have had some kind of testing process after setting an initial low. In 2002, for instance (our most recent low prior to March 2008), the S&P 500 tested the lows on three separate occasions (red arrows) before the final lows were ultimately set. So, to expect things would be different this time doesn't make much sense.

There will be short-term trading opportunities that present themselves during the remainder of the summer and into the fall; however, we don't see any directional bull trend re-establishing itself before some kind of retest sequence. The only thing that would change this outlook is a high volume move on strong internals back above the recent highs.

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Source: Kevin Lane, Fusion IQ, July 6, 2009.