Wall of worry?

Stocks continued their move higher on Friday as the S&P 500 closed above the November high for a 3rd straight day, all but confirming the breakout.

The Dow gained 40-points on the day as the market continues to climb that preverbal wall of worry.
                                  
For the TSP, the C-fund gained 0.60% on Friday, the S-fund was up 0.95%, the I-fund added 0.21%, while the F-fund (bonds) fell 0.21%.  For more on the weekly and monthly returns, please see our TSP Weekly Wrap-up.  

The S&P 500 remains above the breakout level (line D) and continues to push along the bottom of the middle trading channel line (B).  I think we can use lines C and D below as our warning areas.  Unless the S&P moves below either one, I don't see a reason to be a seller.  At some point the market will pull back, but we could expect those lines to act as support, but if they do break, then we know it may be time to take profits.  Of course if you have made a bunch of money this year, locking in profits is an option, but we are heading into the strong holiday seasonality period, which begins Monday 12/20.
                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The blue arrows above show the distance between the 200-day EMA and the market peak in April.  We have noticed over the years, that this can be consistent; meaning if the market pulled back when the S&P 500 was about 125-points above the 200-day EMA once, we might expect this rally to also find resistance 125-points above the 200-day EMA. 

With the S&P 500 currently sitting at 1240, it is 104-points above the 200-day EMA, which is 1136.  That gives the S&P 21-points to play with, but the 200-day EMA is currently rising so that is a moving target.  I have a few reasons to believe that we could see 1275 on the S&P 500 before this rally peaks.  Perhaps by then the 200-day EMA will have risen to 1150, putting it within 125-points of the S&P.  That would certainly help me in making a decision to take some profits.

The once lagging bank stocks have rallied over the last week or two to the point where they are now testing what looks like a 7-month trading range.  Many have been waiting for the banks to participate in the rally and a move above that July high may bring in more buyers.


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

The banks have been getting help from the rise in bond yields.  As the economy shows improvement, the chances of see higher interest rates increases, and that helps the banks' bottom line.

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


Surprisingly, the NYSE is still not overbought.  In fact, it is less overbought than it was last week.  If there is a problem, it is that the index has not been able to get overbought.  Strong markets can continue to rally when overbought, but I get a little nervous when a rising market gets less overbought. 


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

The dumb money put/call ratios are getting more bullish, which is not a surprise in a rising market, but they are still off of the high levels of bullishness that we saw at the April peak.
                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The smart money put/call ratio (OEX) has completely reversed their sentiment from extremely bearish to extremely bullish without a whole lot of market movement.  Because of this strange action, I am not completely trusting this indicator at the moment.
 
The dollar has been rallying for the last week, and it is either going to continue to move higher and keep the uptrend intact (a higher low followed by a higher high) or we are seeing a bear flag that would likely break down soon, if that is the case. 
 
                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The 200-day EMA seems to be acting as resistance right now, so I am leaning toward the bear flag break down.

The TSP Talk Sentiment Survey remains on a buy signal after the bulls (58.08%) to bears (30.30%) ratio of 1.93 to 1.  That is close to a 2.0 to 1 sell signal, but not there and the neutral reading means we "hold" onto the current allocation, which is 100% S-fund. 

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