Back in the saddle

Well, back in the wedge, anyway.  The market finally took a break from its strong start in 2010.  After a late push, the Dow actually only lost 37-points, but the broader market indices were down about 1% or more.

For the TSP, the C and I-funds lost 0.9%, while the S-fund dropped 1.37%.  Bonds were a safe haven giving the F-fund a gain of 0.4%. 

This was the first negative day for the S&P 500 in 2010.  It was a nice run, and other than the sell-off on December 31st - the last trading day in 2009, the S&P had gone almost straight up since the Santa Claus rally began on December 21. 
                     
                      Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The S&P closed above its 20-day EMA, and other than the fact that it moved back into the rising wedge after a half-hearted breakout, the technical picture remains sound.  If the lower support of the rising wedge breaks, we'll have to take another look to determine potential pullback targets, but for now things still look OK.

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

The put / call ratios continue to tell us that the smart money is quite bearish while the dumb money is overly bullish.  That's not a good combination.

The CBOE's 0.76 ratio is a level normally only seen at the most overbought conditions, although we saw the market only produce minor pullbacks in 2009 when this level was reached. 

The second graph is the Equity put / call ratio and it is in a similar situation; hitting extremely bullish levels, which is bearish for stocks since it is a contrarian indicator.
                      
                      Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The OEX put / call ratio is a smart money indicator and its 1.52 reading is the highest (lowest in position on the chart) since 2007.

You can see that prior to 2009, an anomalous year, the market found trouble when the both the dumb and smart money were giving extreme readings in opposite directions.  That said, we have to respect that this market has been so strong that throughout 2009 the market did consistently buck this trend and moved higher after just minor pullbacks.

That's all for today.  We have some extremes that require caution, be we are smack dab in the middle of a major bull run.  This thing can go either way.  We're due for a pullback, but it will more than likely be a buying opportunity rather than anything more serious, but we'll want to see a little more of how this plays out before making a call.

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

Tom Crowley