Market Insider

Tuesday could show that bulls are back in business

Pause in selloff or return of the rally?

Some heavyweight earnings and data on the services sector are expected Tuesday as traders debate whether the summer rally has resumed, or the selloff is just taking a pause.

Stocks futures were lower Tuesday morning, after the market rebounded Monday from last week's selloff, helped by Portugal's plan to bail out Banco Espirito Santo. But stocks closed off the highs it scored in the final hour. On Monday, the closed up 13 points at 1,938, and the Dow was up 75 points at 16,569. The Nasdaq was up 31 points at 4,383, and the Russell gained 0.9 percent to close at 1,124.

"I think we're having a little pause in the decline there, but I think the market is going to go down more. There's too much supply coming to the market. There's been too many deals, too many low quality deals. Too much paper floating around. We need that to shut off, and then we'll be okay," said Steve Massocca of Wedbush Securities.

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Some momentum stocks rallied hard Monday, with Priceline up more than 4 percent; Tesla up more than 5 percent; Groupon up more than 8 percent; and FireEye up 4 percent.

Traders on the floor of the New York Stock Exchange.
Getty Images

"The market seemed to have room for an oversold bounce, and the selloff at the end of the day was people saying they didn't want to deal with overnight risk.

The bulls overcame one obstacle, closing above Friday's high," said Scott Redler, partner at He said the next target for the S&P on the upside is 1,952/1,950—a level that was significant when the S&P fell through it, and it could now become a zone of resistance.

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On the downside, technicians were eyeing the 1,900 level as a next stopping point had the S&P fallen further. Massocca said he would like to see it hit 1,865, opening a buying opportunity. "Recent history is you buy them here," he said, commenting on the string of shallow market selloffs. Stocks have not had a more than 10 percent correction since October 2011.

"I think there's still some skepticism out there on what's next. It's hard to be convinced that Friday's low is the summer low," Redler said. Encouraging signs were the fact that technology has been holding up, he said.

Massocca said overvalued momentum stocks are a problem for the market. "My view is that needs to get washed out and you keep an eye on these excesses," Massocca said.

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What to Watch

ISM nonmanufacturing data is expected at 10 a.m., as are factory orders.

Earnings released before the bell include CVS Caremark, Toyota, Archer Daniels, Coach, MGM Mirage, Liberty Media, Regeneron and Scotts Miracle-Gro. Disney, Activision Blizzard, FireEye, Zillow, Groupon, and Take Two Interactive report after the closing bell.

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—By CNBC's Patti Domm