Sun Shines on Shares Yet Again

Market players of late have been playing the old game of "buying on the rumor" and "selling on the news," which means that selling could occur even if the report meets both expectations of strong growth and low inflation. Of course, a miss, especially on inflation, would be more punishing. "The market has been more vicious to the downside than it's been rewarding to the upside," says Johnson.

The market also will have to grapple with other key reports, including the second-quarter employment cost index, the University of Michigan's consumer sentiment index for July, and the July Chicago purchasing managers index.

None of the market's current reaction, though, have to do with the fundamentals of the reports. As Johnson says, "the only thing the market is really focusing on right now is the market itself."

After the S&P 500 managed to break out of an oppressive trading range a couple of weeks ago, traders want to see how much further they can stretch the exercise and make new highs. But signs of sideways trading and consolidation have become more obvious recently, pointing to the nearby end of the three-month rally in stocks.

For Johnson, and for many market analysts, the most obvious sign is the performance of the semiconductor sector, which had been red-hot over the last couple of months, and recently led the Nasdaq Composite to its highs for the year.

But over the past five trading sessions, the Philadelphia Stock Exchange Semiconductor Index, or SOX, has been underperforming both the Nasdaq and S&P 500. After rallying Wednesday on the back of strong earnings from Texas Instruments (TXN Quote) and Taiwan Semiconductor (TSM Quote), the SOX has fallen back over the past two sessions. On Thursday, it finished only fractionally higher, a disappointing performance compared with the other major indices.

"The risk going forward is that consolidation results in a couple of down days and that investors start taking profits," he says.