Peak or breakout?

Stocks moved up sharply on the first trading day in December.  The Dow was up 126-points, and the TSP stock funds were up 1.2% to 2.6% with the I-fund leading the way with help of the declining dollar.  The F-fund shed 0.23%.

The S&P 500 gapped higher, leaving a small open gap near 1098.  It is pushing on one of its overhead resistance lines and if it is able to breakout from the recent consolidation between about 1085 and 1110, would likely shoot up to test the longer-term bullish trendline.


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

It is certainly not out of the water yet, but with the 20-day EMA moving higher and remaining above the 50-day EMA, and the 50-day EMA rising and still above the 200-day EMA, it is tough not to put on a bullish face as a trader - whatever your thoughts might be regarding the market and economic fundamentals. 

Granted, the chart looks extended and the S&P is now 100-points above the 200-day EMA, but we are also trading in the final month of the year of a roaring bull market move, that also happens to be the strongest months historically, having closed positively 75% of the time between 1950 and 2005.  Yesterday's 1% gain was a good start.


                               Chart provided courtesy of www.sentimentrader.com

Even last year when the stock market was pounded mercilessly, the TSP stock funds were up between 1% and 7.7% in December of 2008.

Sure, the market may end up losing ground in December, but if it does, it will be bucking some major historical trends.

The market has sure been wild lately.  We have seen more gaps recently than I can remember.  The chart of the Nasdaq shows this best.  

                   
                  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
                       
What this means, I am not certain, although volatility generally means a change is coming.  The question is, will the change be coming soon (December) or will it happen next year?  In the interim, the choppiness may frustrate us as we try to pick a direction and allocation.

The chart of the Dow Transports,  the market leader, has pulled back from a recent triple top, but now seems to have broken out of a bull flag formation.  If we get another test of the top, can it break through this time, or will we see the start of another leg down?  I do not recall seeing many, if any, quadruple tops.  If a test is made, I can see a breakout to new highs.  It make be a fake out breakout, but again, December's favorable environment for stocks may help the Transports get through this time.

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

The spike higher in the dollar on Friday has all but disappeared.  It closed below the 74.90 level and actually closed at its 2nd lowest level of the year.

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

This certainly helped the I-fund yesterday with that huge 2.63% gain.

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