Today's pullback was expected. We have been mentioning for a few weeks now that a correction from the July bottom was overdue. The volume was higher in today's decline and the breadth was horrible. The NASDAQ advancing volume divided by declining volume was at a low 0.11, the NASDAQ advancing stocks divided by declining stocks was at a low 0.31, and the NASDAQ Trin was at a high 2.8 (0.31 divided by 0.11), a level we have not seen in two months.

While breadth was horrible and volume was higher (a distribution day) there is no reason to be alarmed. In fact, this is what bottoms are made of. Contrary do what you may hear on CNBC or from other technical analysts, heavy volume and horrible breadth are not necessarily bad. Bottoms happen when there is a large amount of selling and sentiment is negative. Once the weaker participants have dropped their holdings, the market continues higher. There is obviously quite a difference between a micro-term, short-term, mid-term, and long-term selling climax, but generally speaking, negative sentiment and heavy volume are usually needed to start a new uptrend.

This idea applies to stocks as much as it does to indices. A strong distribution day (heavy selling and a lower close) that breaks key support levels (including moving averages) is usually quite negative, but a distribution day that ends much higher than significant support levels is very positive and necessary if an uptrend is going to continue. As we are currently far from breaking significant support levels, today's pullback was extremely positive. To reverse a trend you need heavy volume and negative sentiment, so if we had a series of down days on lower volume and average breadth, we would have a reason to be concerned, as significant support levels would be approacting without a large amount of selling. Therefore, contrary to what you may hear, today was a very positive day for market participants that believe the long-term trend is still up. Corrections are inevitable, and this is exactly the kind of correction we want.

Tonight we have charts of the NASDAQ Composite, S&P 500, and the Russell 2000. Are purpose in showing these charts tonight is to see how far above significant support levels we currently are, even with today's decline.

The NASDAQ Composite has started to head for the 2150 support level. The next support level is the 2125 area and significant support is in the 2090-2100 area. We highly doubt that the NASDAQ will fall this far, but as long as this area can hold, we are still above major support and have no reason to be concerned.

The S&P 500 has support around 1292. If this area does have a sustained break to the downside we expect the 1280 area to definitely hold up.

The Russell 2000 has recently shown some strength and is therefore not vulnerable at this point at all. Support is in the 702 area and the 690 area is where major support lies.

As you can see from these three charts, not even minor support levels have been broken yet. Even though nobody enjoys sitting through corrections, just remember that these corrections allow for the trend to continue higher in a healthy manner.