Monday, May 12, 2003 | 11:38 AM

As this leg of the rally starts to run away, concerns are popping up. None of these issues changes our underlying perspective–the market is in a cyclical bull mode and may end up 15–20% higher before significantly reversing. Regardless, signs of a near term pullback are appearing, and they are worth reviewing:

Too Many Bulls: The nearly 56% Bulls (24.4% Bears) in the most recent sentiment survey by Individual Investor is an initial cause for concern. People get Bullish after they buy stocks, not before (that’s just Human Nature).

Overbought: By most measures, the markets are have come pretty far pretty fast. The measure of OB/OS is strictly a function of price and time; An overbought condition can be alleviated by either a pullback (price), or by treading water for a while (time). If the market marks time (instead of pulling back), its somewhat bullish.

Speculation remains a concern as many third tier issues and high priced dotcoms maintain their aggressive chart patterns. Hints at days of old, and that’s bearish. Even DELL is up nearly 50% since February 2002 (3 months ago).

European Bourses look anemic and on the verge of rolling over. The German Dax was down nearly 3%, while the (non-Euro denominated) FTSE turned positive. The weak dollar/strong Euro makes goods from Europe more expensive here; Europe is already in a near recession, and without US consumers, the situation there could worsen.

Equity Put Call Ratio has moved up smartly, without a commensurate move in the VIX. This suggests that portfolio managers are buying cheap insurance on their long positions. If the VIX had moved up sharply along with the Put/Call ratio, that would indicate a “Wall of Worry” is forming; Without that concern, the P/C ratio remains Bearish.

We expect a shallow, buyable pullback over the next week.

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