Even though it may be hard to believe, when looking at the Russell 2000, S&P 500, and Dow Jones Industrial Average, the recent pullback that started in July has actually been quite healthy. When looking at these three indices, it is easy to believe that the low for this correction was on June 12th. You can think of the rise from June 13th to the beginning of July as the first leg higher in what may become a burst of momentum to the upside. Often the first leg is not as powerful as the second leg higher. Today, was very possibly the lowest close we will see  for the recent correction that started in July.

When looking at the first chart (Russell 2000) you can notice how the Russell 2000 is sitting right below horizontal support currently. You can also see how the index broke above its downtrend channel recently when constructing its upleg from the June 12th bottom. We used Fibonacci retracements (purple lines) to show how the index has currently pulled back 50% of its recent move higher. Often first leg's will retrace more than 50%, but with horizontal support being so strong here, we believe that the next leg higher could continue tomorrow.

The next chart is of the S&P 500. You can see how this index has currently retraced 38% of its retracement only, but it is at strong horizontal support. The S&P 500 could still fall to the 50% retracement level, but it is very possible that the small pullback ended today.

The Dow Jones Industrial Average is in a similar pattern. The index has pulled back to its 50% retracement and is sitting right above support.

The last chart (NASDAQ 100) is telling a completely different story. The index hit a new low from the April 2006 correction, so there is no way that the NASDAQ 100 will begin its second leg higher in the coming few days. It is unusual for the NASDAQ 100 to not lead a new move higher, but as most other indices have a much more bullish look to them and as technology has not been leading for months, it is still possible that the bottom for the overall market occured on June 12th. We will need to see if the other indices are able to stay above the support areas mentioned tonight to know for sure that the bottom is already in.

Starting tonight we will be sending the long-term commentary out in an e-mail each week. If you are reading this off of the website and have not received an e-mail, please contact us immediately.