The Dow Jones and the S&P 500 closed flat today after being up fairly strong out of the box. The Nasdaq on the other hand was the weakest out of the broader averages taking out Monday's low. This is verifying what I have been talking about waiting for a pullback. The markets are doing their normal pausing/pullback out of a strong rally. One of the indicators that I use is the amount of longs and shorts my stock screens put out in the evening. As you might imagine, I am still showing many more longs than shorts.

One of the nicer chart patterns that I have seen is Cree Incorporated (CREE). Notice that it has performed well over the last month accompanied by fairly good volume on the up days and less volume on the down. If the highs from Tuesday are taken out, another leg up will be confirmed.

Cree Incorporated

The market has taken a small respite over the last few days, aided by last week's holiday. The confirmation of a pause in the rally was confirmed with the markets inability to hold its early gain. The million dollar question is how long will the pullback last. My experience tells me that when you get a rally that has been as strong as this has been, the pullbacks are short and shallow. So make sure you use stops to protect your profits and principal.

Tom Incorvia is a swing trader with 18 years of experience in the financial markets.  E-mail him at tincorvia@gmail.com.