The long and short of it

Stocks were mixed but mostly higher yesterday as the Dow picked up another 45-points.  The S&P 500 closed higher, as did the Dow Transports, but the Nasdaq and small caps were down.

For the TSP, the I-fund led the way again after more weakness in the dollar, the C-fund gained 0.17%, the S-fund was basically flat, and the F-fund picked up 0.05%. 

The S&P 500 is one of those melt up phases as it has now been up 6-days in a row, and 13 of the last 15 days.  It is currently 112+ point above the 200-day EMA, right near the peak overstretched zone that we saw in 2009 - between 113 and 115.  The 200-day EMA is currently rising just over 1-point a day. 
                   
                     
                     Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

So the market is certainly due for some kind of a pullback in the short-term, but the market rarely makes things easy.  It won't make things easy for those trying to buy a dip, and it probably won't make it easy for the bulls to get out when the next pullback does come.

Taking a look at the longer-term charts (weekly and monthly) we see that the weekly chart of the S&P 500 is showing the parabolic move off of the March 2009 lows, and the PMO indicator is into overbought territory and showing signs of wanting to roll over.  So, an intermediate-term pullback is not out of the question.


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

The monthly chart of the S&P 500 above is telling a different story.  Sure, we could see a short-term and intermediate-term pullback / correction, but surprise, surprise, the long-term looks very nice.  The downside trend has been broken, and the PMO indicator gave a long-term buy signal late last year, and they tend to last quite a while.  Carl from DecisionPoint.com said that there have only been 5 such signals since 1929.  The last one was in 2003, near the bottom of the prior bear market.

A quick look at the Dow Transportation index shows another new high was made yesterday, so the leader is leading in the right direction, and the momentum is still higher, although there could be a little resistance here.

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

The dollar's weakness yesterday took me a little by surprise.  I have been expecting a breakout to the upside of this big bull flag, but it looks like it wanted to give at least one more push lower. 

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

The fact the dollar's resistance came from the 200-day EMA could be a problem for the bullish case, so the battle between the 200-day EMA resistance and the bullish bull flag formation continues.

Alcoa kicked off the 4th quarter earnings season after the close last night with a disappointing report.  The futures are slightly down as I write this so let's see if the buyers step in and buy any weak opening.

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

Tom Crowley