The current market is trading with caution and is unable to hold above some key technical resistance levels. Failure to break higher could see the major indices trade in a sideways consolidation channel.

The chart of the NASDAQ is continuing to show a bullish V pattern and recently managed to break a key point at around 1,650 before retrenching, but is holding above 1,640. Renewed buying in tech could drive the NASDAQ to 1,800. Failure could see a relapse and a return to the sideways channel. The other key major indices are also showing a bullish V pattern, but will also need to make some upside breaks (DOW 8,400, S&P 500 900-950, Russell 2000 475).

There are also some positive signs in other technical sentiment indicators that reflect the feeling or pulse of the market.

The new-high/new-low (NHNL) ratio measures the number of stocks touching a new 52-week high versus the number of stocks that have declined to new 52-week lows. The theory is that, in a bullish market, investors quickly bid up stock and you see a rising NHNL ratio. When investors get nervous, less new highs are made and the NHNL ratio tends to decline, thereby giving you a warning. At the other end of the spectrum, bear markets have more new lows than new highs.

There is a general guideline that we use to examine the NHNL ratio. When the ratio is above 70%, it is bullish; below 70%, it is a warning; and below 20%, it is bearish. Watch the sentiment to see how the market is feeling.

The NHNL ratio on both the NYSE and NASDAQ has been bearish over the past year, but there have been signs of improvement in recent weeks. The NYSE has been bullish for the past eight straight sessions to Tuesday, while the NASDAQ has been so in four of the past eight sessions. The numbers are encouraging, but they are far from forming a sustained trend, which is what I want to see before there is any hope for a sustainable rally. As sentiment improves, investors become more positive towards stocks and bid the market higher.

My feeling is that the markets are having a difficult time in holding on to upward moves, as there continue to be numerous uncertainties with the economy, housing, consumer spending, and jobs.

I sense that stocks will continue to rally, but then trade lower on profit-taking. This remains a trader's market and not yet a sustainable market. Be mindful that the V pattern could actually be the start of a bullish double bottom or W formation, which means the major indices could decline again towards the March lows before staging a more sustained rally.