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The bad news is that the market didn't have an automatic rebound Tuesday like it has in the past two months. The good news is that the raising of the terror alert didn't take the market down very much.

Things don't go down easily, but they didn't exactly go up well, either. And that's what brings about a correction.

For now, the market seems to have found the levels it hit nearly two weeks ago, on May 8, as support. The next few days could see more rally attempts.

As I looked at a chart of the Dow Jones Industrial Average after Tuesday's close, I could see how folks can find something both bullish and bearish in it.

You can see how it broke that uptrend line, so I'm sure some are saying this is bearish. Admittedly, it isn't bullish, but this is a very steep uptrend line and a very short-term line as well, so its break is not of major importance.

Here, you can see that when we draw in a different sort of trend line, this chart actually appears bullish. It looks like we've had a correction to the breakout and we're holding.

As usual, I'd prefer to look at the underlying statistics rather than charts of the averages. The underlying statistics are not weak; they simply got exhausted and lost their upside momentum. And that exhaustion has led to a correction.

Last week I showed the new highs on the Nasdaq and explained how this had become problematic. The Nasdaq's number of new highs peaked May 2 at 183, when the Nasdaq was at 1500. The index subsequently rallied to 1550, and the number of stocks making new highs did not expand beyond 183. This statistic has since fallen to 60, one-third of the peak reading and a level not seen since April 10, when the Nasdaq was at 1365.

So if we turn around and rally from here without doing a bit more work, can we manage to exceed that peak new-high reading with a 60-point Nasdaq rally? I think even the bulls would have to admit that's unlikely.

Sure, rallies are possible. Because we went up grudgingly, we ought to go down grudgingly as well. Therefore, I don't expect the market to fall in a straight line. But that contraction in the number of stocks making new highs tells me they're simply not quite ready to have a rally that makes it through resistance. There's still more work to be done in this correction.

Overbought/Oversold Oscillators

For more explanation of these indicators, check out The Chartist's primer.

Helene Meisler, based in Shanghai, writes a technical analysis column on the U.S. equity markets and updates her charts daily. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. At time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback and invites you to send it to Helene Meisler.

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