Our long-term system is moderately overbought, but a pullback here should relieve the semi-overbought condition. The recent fall has been mild and healthy, but the NASDAQ Composite and especially the NASDAQ 100 have nearly refused to decline. We need to see a pullback in technology if we are to see significantly higher prices in the months ahead.

The first chart is of the NASDAQ highs divided by the NASDAQ lows. The NASDAQ Composite is underneath the chart and there is a 25 day exponential moving average as an overlay. You can see that even though the index continues to break higher there are much lower highs divided by lows than in previous tops. Many technicians refer to this as a divergence, but our work has shown that markets top with optimism and strength. Therefore, we would expect to see this indicator rise much higher before we trigger a sell signal.

The second chart is of the put/call ratio. Here, lower numbers correlate with market tops, not higher numbers as with the highs divided by lows. You can see that even though the moving average has been declining it is higher than previous market tops and these previous tops were only corrections not new downtrends. We would expect to see this indicator much lower before a top is in.

The next chart is of the NASDAQ Composite. We believe that we have about 3% lower to fall before the uptrend continues. The 2680 area is our current target.

The S&P 500 closed at the 1540 support area today, but we feel the index will fall to the climbing 50 day moving average during this pullback. Our target is the 1500 area.

The Russell 2000 is likely headed to the 800 area, which is about a 3% decline from here. The 50 day moving average should offer support.

We expect the pullback to continue and we believe we are still in a long-term uptrend.