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The Russell 2000 (NYSE:IWM) edged lower Monday, slipping 3.06, or 0.42%, to 718.00. Despite the dip, the market was still sitting on the second highest daily close since mid-February, and the rather tame pullback was no surprise given overbought momentum readings on daily studies after last week’s big surge.

In addition to profit-taking from short-term traders who caught the rally last week, the psychology behind today’s decline was fueled by soft earnings from the nation’s second largest bank, Bank of America (NYSE:BAC), which fell about 2.5% and was one of the biggest losers in the major broad indices. In addition, National City Corp. (NYSE:NCC), was down 27% after poor quarterly results and the general malaise in the financial sector kept ongoing frets over the credit crunch in play.

“The Fed has eased monetary policy 300 bps in a short span of time and implemented three new programs to reduce stress in the financial markets. However, market stress remains persistent,” Asha Bangalore, an economist with Northern Trust, said in an email. Bangalore noted that, “At the long and risky end, the spread between junk bonds and the yield on the 10-year U.S. Treasury note has improved” but remains elevated and a far cry from the spread levels prior to August 2007. “These indicators of market stress would have to show a significant improvement before it can be declared that the coast is clear,” she said.

In addition to credit market jitters, the market will likely continue to focus on various key headline earnings results the next couple of days, as the economic calendar is tame this week. In fact, there are no economic reports on tap until Wednesday’s existing home sales release, and although the housing market is in . . .