How much more?

Stocks shrugged off a slew of bad news yesterday and managed to close higher yet again.  The Dow ended the day up about 30-points.  Nothing special, but we have had several excuses to see a sell-off, but it's not happening.

This market will eventually pull back, but whether that will start today, next week, or next month, or later, is anyone's guess.  We could always get a "sell the news" reaction from the release of the 4th quarter earnings reports and we might get a clue today as Intel posted a strong earnings report after the close yesterday, yet the futures are down slightly as I write this.

We saw similar action in the market a few years back and it can be very frustrating to market timers.  After a few years of severe volatility, the buy and holders are now in the best position.  That is until we see a pullback or correction, but again, when?

For the TSP, the I-fund led the way yesterday with a gain of 0.86%.  The C, S and F funds were each up about a quarter of one percent. 

The S&P 500 continues to be stretched above the 200-day EMA, currently by 111-points.  That's the bad news.  The good news is it is back above that resistance line after just one close below it.  There's not really any noticeable technical danger, but we know this move can not last forever. 
                     
                      Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Taking a look at sentiment, we are seeing a rather benign reading from the current AAII Investor Sentiment Survey with the bulls (47%) to bears (27%) ratio of 1.75 to 1, although we did get some pullbacks at lower readings last year.  Still, 1.75 to 1 is pretty neutral, particularly during a bull market.
                     
                     Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The TSP Talk Sentiment Survey is another story.  This week's survey saw 58% bulls and 35% bears for a 2.32 to 1 ratio.  That's a little more concerning, although we saw higher ratios in December and the market held up OK.

This market has momentum on its side and it appears we may need to see some very extreme readings before this thing rolls over.  Investors who have missed some or all of this 10-month rally have to be itching to put their money to work, and that is why the dips are being bought so quickly.  The sentiment surveys could start hitting 4, 5, or 6 to 1 ratios or higher, as they did back in the early 2000's. 

We talked the other day about the extreme put/call ratios we are seeing from the dumb money as they become more and more bullish, but looking at a long term chart, you can see that there have been much higher (lower in number, higher on the chart) readings in the past.  This thing could just be getting started for all we know.


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

Fundamentally, I don't really understand this rally, but it is what it is and that is why I prefer to time the market based on technical analysis. 

If anyone is interested, I set up a fundraiser at MercyCorps for the victims of the Haiti earthquake.  I always feel so helpless in times like these so rather than just giving a few bucks, I thought I would do something a little more by providing a vehicle for our readers to help also.  It looks like a terrible situation, so if we can spare a couple of bucks, it will add up.  It is a quick and painless process.  Thanks!

                                  

Thanks for reading.  The TSP is closed on Monday for Martin Luther King Jr. Day.  Have a great holiday weekend. 

Tom Crowley