Several indicators suggest we are somewhat overdue for a pullback.

The 10 day moving put/call ratio hit its lowest level in over a year; Other indicators we track all suggest that the broad post-election enthusiasm has reached a short term peak; That simply implies that the present overbought condition (and somewhat complacent sentiment) needs a little backing and filling to cool the fires down.

Several other indicators warrant caution here: The Arms index (10 day MA) is at 0.96, the VIX is a 13.25, AAII sentiment is near 60%.

None of these are fatal to the advance, they merely suggest a pause beginning sometime over the next 10 days would be well warranted.

All of the factors we mentioned previously — an underinvested hedge fund community, seasonality, cash on the sidelines and mutual fund performance anxiety — suggest that the retracement will be mild and relatively short in duration.

Put Call Ratio, 10 Day Moving Avg (click for larger chart)

10_day_moving_avg_put_call_ratio

Source: Redwood Technimentals

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