Stocks Proceed With Caution

Tuesday's post-holiday lethargy is a reminder that nervous eyes are turned to the rest of the week's barrage of economic data. The elusive prize still on traders' minds is clarity about interest rates and perhaps another run at a new high for the S&P 500.

The stock market traded on thin volume Tuesday, swaying with the day's news -- up early on news of more deals and a better-than-expected consumer confidence report, then down as Chinese officials took another step to quell speculation in local markets. Still, U.S. stock market indices finished in the green as dip-buyers saved the day in the last hour of trading.

The Dow Jones Industrial Average finished up 0.1% at 13,521.34; the S&P 500 finished up 0.2% at 1518.11, and the Nasdaq Composite closed higher by 0.6% to 2572.06.

"The reality is, we're between earnings seasons, the economic slate isn't full until Friday, and when you don't make fresh highs, the futures bounce around, and people just kind of pause," says Bill Nichols, trader at Bear Stearns.

There was a slew of bullish news Tuesday, but optimism is hard to come by at overbought levels.

"The market is trying to go higher," says John Bollinger, president of Bollinger Capital. Bollinger says there are three possible outcomes to overbought conditions: The market can stay overbought, it can be hammered down in a full-blown correction, or it can digest gains by going sideways. When it goes sideways, the market accommodates the sellers, and when they're "exhausted," stock prices move higher again.