The market continues to move into new highs on lower volume. This technical action tells us that we are due for a pullback. In addition, the put vs. call trading volume chart as seen in IBD on page B2 shows an extreme low. Generally, this indicates that most investors are very bullish, which is a contrarian indicator. Although, we consider this to be a secondary indicator to price/volume action on the major indexes, the market is extended and caution is warranted. Most certainly, do not chase an extended stock, but if you own the right stocks and have a decent cushion, then you have the luxury of letting them play out further and/or adding to positions on any pullback. Also, watch all of the leading stocks; most of their pullbacks should be less severe than the rest of the market.

Best returns,

Scott O’Neil

President, MarketSmith Incorporated

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