Editor's Note:

Investors seem to be losing their conviction. Technically the larger trend for the markets is still higher yet we are seeing some bearish divergences and a few sell signals start to develop. Leadership names for most of 2011 have faltered plus the financials are showing new weakness.

Investors used to buy bad news because it meant the Fed would be stuck on the sidelines even longer. Now even good news has failed to move the market. Of course there are plenty of negative headlines fighting for your attention.

Meanwhile the end of QE2 has already been discussed ad nauseum so the markets should not be surprised by its approach at the end of June. Yet there remains a cloud of uncertainty regarding how the markets will react to this event. The stock market is supposed to be looking ahead the next six to nine months (or longer) so the end of QE2 should already be baked in. Of course we all know the market is prone to bouts of irrationality.

Investors may want to take a more defensive approach to current positions and to launching new bullish trades. I'd look for stocks with a strong up trend and wait for a dip near support. We've added a couple of strong candidates to the watch list tonight. I'm not adding any new candidates this evening.