This blog post originally appeared on RealMoney Silver on May 21 at 7:42 a.m. EDT.I had previously suggested that the second derivative recovery could result in an extended and vulnerable market, with a 5% to 8% drop in the cards. After a two-month period of improving breadth and an advance that approached 38%, it appears that the upward momentum of the market is finally being tested. Typically, overbought markets are corrected in brief order, and four to five weeks seems to be the historical precedent. This may still be the case, but I am beginning to view the possibility of a sideways correction, in which market sectors "recycle" within the context of only a modest move lower in the market indices. Some fundamental factors and sentiment considerations lead me to this conclusion.
Know what you own: Some of Thursday's most active stocks in midday trading include Regions Financial (RF), Bank of America (BAC), Direxion Daily Financial Bear 3X Shares (FAZ), Direxion Daily Financial Bull 3X Shares (FAS), SPDRs (SPY), Financial Select Sector SPDR (XLF) and Citigroup (C).