Is the pain trade still higher?

A trader on the floor of the New York Stock Exchange.
Carlo Allegri | Reuters

Market consolidation: it's boring but necessary.

It's another consolidation day, and you should be happy for that. I know, it's boring, but it's healthy for the markets. We need to move sideways before we have a shot at another leg up. Otherwise, you quickly get into oversold territory.

Just look at what has happened in the last few weeks:

1) Volatility has dramatically declined, with the Volatility Index at the lowest level since November; Lowry, the oldest technical analysis service in the U.S., has noted that selling pressure "has significantly receded."

2) Oil is no longer in a pattern of lower lows and lower highs.

3) China has stabilized.

Perhaps most importantly, pullbacks have been very minor. Since Feb. 11, we have been in a rally-consolidation-rally trend.

The initial Feb. 11-17 rally took the to 1,926 from 1,810, a breathtaking rally of 6.4 percent (!!) in four trading sessions.

Then there was a consolidation phase from Feb. 18-29 when the markets moved mostly sideways.

We hit another big leg up on March 1, when the S&P rallied 2.4 percent on an oil rally and a better-than-expected ISM report.

The market again moved sideways from March 2-10.

The most recent leg up started March 16 on dovish comments from the Fed, which has taken us up another 2 percent in four trading sessions.

Now, it looks like we are in another consolidation period. Volume has dried up, which is normal after a quadruple witching. Are we overbought?

Probably, but not by much. After this kind of rally, it would be normal to have some kind of retracement, where we give up, say, a third of the rally, which would bring the S&P 500 to roughly 1,970 from here.

Why hasn't it happened yet? Because sentiment was so absurdly negative on everything that even stability in China (not an improvement in the outlook, just stability) was greeted as a godsend.

Here's one thing for sure: no one is set up for a bull market this year. No one. Look at the year-end targets for some of the major strategists. Up small. Flattish. No bull market.

That's why I still say, the pain trade is higher.