Taking out resistance, but stretched

Stocks traded in a tight trading range again yesterday, and while the Dow closed down 2-points, the rest of the indices finished solidly in positive territory. 
                                  
For the TSP, the C-fund gained 0.39% on Thursday, the S-fund was up 0.40%, the I-fund lost 0.13%, while the F-fund (bonds) added 0.08%.  

The S&P 500 remained above the November highs for the 2nd straight day.  A good start but we still need to give it another 1 to 3 days to confirm it.  There is overhead resistance getting in the way, but luckily for the bulls, the resistance line (B) is rising every day.
                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

There are a lot of signs that the market could be getting tired and in need of a rest, but don't underestimate the power of a breakout and momentum.  We saw a similar move in September, and after the S&P took out the August highs, the momentum continued higher for several weeks, until the early November peak.  The recent pullback in the S&P was 50-points (1225 to 1175) so I wouldn't be surprised if we see another 50-points, from 1225 to 1275, before this rally is over.  Whether we see a pullback first remains to be seen. 

For that 1275 number to happen however, we would not want to see the dollar move back above the 200-day EMA, or the December high.  If it does, that could be the end of the rally for stocks, at least for a short-term pullback.

                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

We are seeing many overly bullish, overbought type readings so caution may be warranted in the short-term, but in another week or so we will start the strongest two-week period for stocks of the year.  Perhaps a pullback or sideways consolidation until then would be healthy. 

One of the overly bullish readings we are seeing is coming from the put/call ratios.  The dumb money is getting quite bullish (which is bearish for stocks) but they are still off of the levels we saw at the prior market peaks.
                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
 
The smart money put/call ratio indicator has been confusing as we saw some historic bearish readings just a couple of weeks ago, but it didn't amount to much more than a couple of percentage points down in the indices.  And now the smart money is racing back toward a very bullish reading (which is bullish for stocks.) 

The sentimenTrader.com Smart Money / Dumb Money Confidence Indicator saw the dumb money tick up over 70 this week, which is getting troubling.  It is also not quite at prior peak levels, but it is getting close. 

                               
                                 Chart provided courtesy of www.sentimentrader.com

I had to let this week's TSP Talk Sentiment Survey go a little long this week because it was so close between a sell signal (2.0 to 1) and a neutral reading, which would keep it on a buy signal.  (< 2.0 to 1).  I was seeing 57.59% bulls, 29.23% bears, which is officially a neutral signal at 1.97 to 1, but if you round the percentages to 58% / 29%, it is a sell signal at 2.0 to 1. It was too close to call on Thursday night.

I let it go through this morning and the results are in.  The bulls (58.08%) to bears (30.30%) ratio is 1.93 to 1.  That remains a neutral reading so the system will remain on a buy and 100% S-fund for next week.

Thanks for reading!  We'll see you back here tomorrow.