2/4/2007 4:57:53 PM

It was another week of market strength, with the S&P and Dow reaching multi-year highs. To put things in perspective, this is the first time in over 30 years the Dow has gone so long without at least a 2% correction! To say the markets are due for a pullback is to say the least an understatement.

To summarize, the markets is in lala land, soothed into indifference by "goldilocks" economic numbers and a supposedly soft landing in the housing market. The problem with such complacency, is that when something negative happens, and it will, BAM, the market will probably make up for lost time -- to the downside -- fast. Cracks are already starting to show around the edges, in sentiment, specifically stocks selling off on good earnings.

I'm attaching a couple of charts that show the S&P 500 (SPX) and NASDAQ 100 (NDX). The charts both tell a story of excess and an over-extended market, but they are also different, in that the NDX has already shown specific signs of crumbling, while the SPX hasn't yet. The trend lines on the oscillators point to similar weakness in the SPX, but the actual index keeps climbing -- it may have a little more to go but not much.

I expect the week ahead to usher in some weakness into the markets. We'll keep you updated!

As always, please email me with any questions, suggestions or comments: dynamictrading@stockbarometer.com.