This morning was puzzling. The index I consider most representative of the overall market, SPX, was only up one or two dollars but RUT (the small cap index) was up $16 at one point. SPX pulled back to close unchanged at $1845 while RUT lost about half of its intraday gains to close at $1182, up $8. Normally, one expects the small caps to lead bull markets higher, so seeing RUT gain strongly was clearly bullish. But, what is wrong with SPX? Why can't it break through resistance? In fairness, RUT ended the day right at resistance. So you could argue that RUT was pulled back in line. Trading volume was slightly higher with 2.4 billion shares of the S&P 500 trading. Trading was up 7% on the NYSE, but was down 1% on NASDAQ.

SPX has been trying to break out to new highs for the past two weeks, but so far they have been futile attempts. This week has been even more tantalizing for the bulls with highs at $1859, $1853 and $1853, respectively, on Monday through Wednesday. The closing high this year was $1848, but the market has been unable to hold highs above $1848. Analyzing the candlesticks on SPX yields a classic case of indecision, or an equilibrium between the bulls and the bears. Monday's candlestick was a shooting star, followed by a spinning top and today's doji. The longer a market trades sideways, the greater the probability of a fast, strong move when something finally trips the market. The market may behave like a coiled spring; when finally released, it takes off. It is also worth noting the resistance levels being suggested by the long upper shadows at $1853 to $1859. Each of those moves has added strength to resistance at $1848.

RUT has been trading more strongly than SPX with higher closes each day this week. In one sense, RUT is catching up to SPX. Whereas SPX rose from its low on February 5th and appeared to slow as it neared resistance about two weeks ago, RUT just returned to its previous highs today; today's close was one dollar higher than the highest close on RUT this year.

The report of higher new home sales this morning appeared to set off the bullish run; new home sales were up to 468k for January, as compared to 427k in December. But it is unclear to me why the rally was principally in the small caps.

Volatility rose almost one point with the VIX closing at 14.3%. This level of volatility is certainly not bearish, so the inability of the markets to shake off January and break out to new highs is not too concerning to the market - yet.