Today's pullback was not surprising. We have talked about the need for a correction for the last few weeks and now we believe we are in the middle of that correction. After the pullback, we believe that the stock market will continue higher. This correction will relax the overbought condition and allow for additional gains in the weeks and possibly months ahead.

The first chart is of the NASDAQ Composite. You can see how the index broke our lower uptrend line and closed just above our support area of 2330 today. The next key support area is 2300. It is likely that the decline will stop here.

The S&P 500 has continued higher for the last two months without any significant pullback. Finally, a trendline has been broken without forming a sideways base afterwards. This suggests that a real pullback has started. Support is in the 1355-1360 area.

The Russell 2000 fell to our support line of 750 today. We believe the index is headed to the 740 area and the 50 day simple moving average. Not only is horizontal support in the 740 area, but the 61.8% Fibonacci retracement from the May to June decline is at 741.

We believe we are in the middle of the pullback we have been waiting for. In the long run this pullback is very positive, as it allows for higher prices in the weeks and possibly months ahead.