With stocks rallying hard and fast from their March lows, expectations have begun to swell for a pullback, or at least a short rest and Monday's trade may show the first signs of equities taking a little break from their recent run. To be sure, the Monday's declines were small with the S&P 500 slipping just 0.3% to 1000.71, but the all-important 1000 level was held. The Dow Jones Industrial Average likewise fell 0.3% to close at 9337.95 with four stocks slumping for every three rising on the New York Stock Exchange. Tech issues were not immune to the declines as the Nasdaq shed eight points to close below 2000 at 1992.24.

Stats Table

Volume was not exactly awe-inspiring on a day when blue chips led the market lower and it was not just equity volume that languished on Monday. Options volume was also light at around just 50% of the daily average. I do not want to get in the business of forecasting events that may or may not occur, but it is worth noting that stocks have been on fire during the typically benign summer months. That certainly speaks to the strength of the rally, but August has a penchant for being one of the more sluggish months on the calendar and September is typically a sour month for stocks, so if equities are going to take a step back, August seems like the ideal time.

Something else worth noting is the fact that traders appear to be primed for a sharp increase in the volatility index, or VIX. According to Bloomberg, traders are betting on a 13% pop in the VIX over the next five weeks, signaling the biggest spread since last August and we all remember the carnage that followed August 2008. August VIX futures trade around $25.90, which is a small premium to Monday's spot close of $24.99, indicating some traders may be willing to pay up for some downside options protection.

VIX Chart

As I noted above, it was blue chip names that did the market in today with familiar names like Alcoa (AA), 3M (MMM) and Cisco Systems (CSCO) contributing to the Dow's fall. Eli Lilly (LLY) and Best Buy (BBY) were taken to the woodshed after Goldman Sachs pared its ratings on both companies. Best Buy, the electronics retail giant, slid 5.3% to $37.66 after Goldman lowered its rating on the stock to ''neutral'' from ''buy,'' saying Best Buy will have to spend aggressively to spur growth. Pharma giant Eli Lilly was added to Goldman's conviction sell list on the basis of looming patent expirations for key drugs.

Curious among the top declining sectors today was the raw materials/commodities group, which tumbled 1.6%, making the sector the biggest loser of the 10 industry groups tracked in the S&P 500. I say curious because materials names had certainly enjoyed their fair share of the recent rally, once again gaining favor among investors after being thrown out with the bathwater late last year.

The Materials Select Sector SPDR ETF (XLB), which counts Dow components Alcoa and DuPont (DD) among its top 10 holdings along with Dow Chemical (DOW) and steelmaker Nucor (NUE), slumped 40 cents to $49.81 today, but keep in mind all of XLB's top holdings were down today and the ETF is up 30% year-to-date, far outpacing the S&P 500's 10% gain. So if ever there was a sector that might be ready to give some of its recent gains back, it might be the materials group. XLB has been consolidating between $30-$31 and today's close below $30 could be bearish, at least in the short-term.

XLB Chart

Another thing to keep in mind regarding the efficacy of a near-term pullback for stocks is that the economic calendar for this week, while busy, is not littered with potential catalyst-type news. Beyond the Federal Open Market Committee's two-day meeting that starts on Tuesday, there is not much in the way of news that will have traders sitting on the edge of their seats. The reality is few investors, if any, are expecting the FOMC to make any interest rate changes.

Of course it behooves the Fed to keep interest rates low in an attempt to fan the flames of economic growth and to aid the Treasury in another week of massive debt auctions. That is right. Treasury is at it again this week with a $37 billion 3-year note auction slated for Tuesday followed by $23 billion in 10-year notes on Wednesday and $15 billion in 30-year bonds on Thursday. Oddly enough, I came across a press report this weekend that pointed out interest in Uncle Sam's debt has been tepid recently and the report went so far as to say that the Fed is picking up the slack by buying billions in bonds on the open market. It seems Treasury doesn't need China to buy all of our debt after all.

The process of the Fed buying Treasury debt is known as debt monetization and there might be something to the press report I saw if you have a look at the chart below that illustrates just how much the Fed's debt holdings have grown recently.

Fed Debt Holdings

Another issue that may hold stocks back a bit is the lack of earnings catalysts. Most of the heavy hitters have already graced us with their most recent earnings results and this week is pretty bare in terms of marquee names reporting profit results until we hear from Wal-Mart (WMT), the nation's largest retailer on Thursday. There is actually a spate of retail earnings that will come out later in the week with Kohls (KSS) and Nordstrom (JWN) joining Wal-Mart on Thursday and JC Penney (JCP) announcing results on Friday.

Combining the upcoming retail earnings reports with Monday's decline in Best Buy, it might be worth keeping an eye on retailers for the remainder of the week, if for no other reason than other sectors appear to be facing light news calendars. I like to watch the SPDR S&P Retail ETF (XRT) when there is the potential for a lots of moves among lots of retailers. XRT has been chugging along, tacking on 25% in the past month, but the ETF closed below $32 on Monday and its Stochastics are screaming overbought. Make of that what you will and have a look at the chart below.

XRT Chart

Other names worth watching tomorrow may include State Street (STT). The manager of $1.6 trillion in assets said on Monday that it may deplete $625 million in reserves set aside to settle lawsuits related to subprime mortgage losses. You did not think those pesky subprime mortgage losses went away with the market rally, did you? State Street made $432 million in payments as of June 30 and has $193 million remaining to cover lawsuits filed in 2007. This issue could weigh on the bank in near-term, the stock shed $1.29 to close at $52.57 on Monday, but the long-term trend is hard to argue with. After all, State Street traded for below $15 in late January and has more than tripled since then.

There was some cheery news on Monday in select names. Take Hormel Foods (HRL) for example. The maker of SPAM boosted its 2009 guidance to $2.36 to $2.42 a share from $2.15 to $2.25 a share after saying its fiscal third quarter was stronger than expected. Hormel reports those results on August 20. Priceline.com's boffo second-quarter results sent the stock soaring $18.92, or 14%, to $150.24 today and this news could provide more fodder that the economy is starting to turn around. Priceline said leisure travel demand was better-than-expected in the second quarter and the company's profits were 35% better than the year earlier period. And, drum roll please, Priceline actually obtained these stellar numbers by growing revenue by 18%, not solely by cutting costs.

Revenue per available room at hotels in many key US markets is expected to decline this year, but the Priceline report could a be a sign that some consumers are feeling comfortable enough to spend on leisure travel and that may just qualify as an unofficial green shoot. Official or not, any news that shows the consumer is feeling a bit more cheery could help the bulls move the market high. After all, the consumer accounts for about 70% of US GDP.

RevPAR Chart

While Monday's declines were nothing to lose any sleep over, as I noted earlier and the chart below shows, September is not exactly the market's favor month. Yes, we are still several weeks away from the dawn of September, but it would be encouraging to see the bulls continue to assert themselves for the duration of August. That may be hard if more traders are hitting the beach early rather than staying attached to their computers.

Either way, ending August on a positive note could prove pivotal in terms of extending the rally through the end of the year. The chart I found only goes up to 2007 and shows September averages a decline of 0.70%, making it the only losing month of the year. And we all remember how bloody September 2008 was, so if you are a bull, keep your fingers crossed that August lives up to its historical billing as one of the stronger months for market returns.

Monthly Performance Chart

Taking a look at the technicals for the three major indexes, the Dow never traversed the 9400 on Monday, which it needs to do before it can begin combating what appears to be strong resistance in the 9420 area. Certainly the bulls would point to the Dow's close that is still above 9300 and that is significant for the time being. If the Dow cannot break the 9420 area and 9300 fails as support, 9200 could be the next resting point and a break there could lead the index back to 9000.

Friday's run to 9437 appears to be no more than a tease and a lack of earnings catalysts could impact the index in the near-term. Do not bank of Wal-Mart being the rising tide to lift all sails with its quarterly report this Thursday.

Dow Chart

A similar scenario is in place for the S&P 500 where Monday's declines were not too punitive and the bulls will surely be glad the measure of the 500 largest US stocks clung to the 1000 level for another day. Keep in mind the S&P 500 is up nearly 50% from its March lows and a little breather does not spell a change in the bullish trend. The index appears to be fighting resistance around 1014 and if it can break through that level, there is a lot of room to run unabated to 1100.

Even if the S&P 500 does take a pause, 980-990 should offer solid support. Only a break of 980 would be troublesome in the short-term.

S&P 500 Chart

Yeah, I know the Nasdaq closed below the critical 2000 level, the tech-laden index has been leading the broader market higher for months and 2000 has proven to be an area that the Nasdaq has frequently stalled out since the tech bubble burst in 2000. What the bulls want to see is the Nasdaq reclaim 2000 and then make its way to 2050, a level that has not been seen in close to a year.

It is probably a fair bet the Nasdaq is going to find tough sledding without the aid of the semiconductor sector. The Philadelphia Semiconductor Index (SOX) has peeled back from 300 and now labors around 295. A move back to the 305 area by the SOX should pull the Nasdaq back above 2000 and within striking distance of 2020.

Nasdaq Chart

If you are a believer that Monday sets the tone for the week, then it would not be surprising to see a lethargic tone loom over the market, but as it is early in the week, I do not want to commit to that sentiment quite yet. This may be one of those middling weeks where a lack of bullish and bearish catalysts simply have the market treading water.