Nice start
                         
2011 gets off to a great start as we saw a sharp breakout above the recent tight trading range.  The Dow gained 93-points and the other major indices all saw gains of between 1% and 2%.

For the TSP, the C-fund was up 1.13%, the S-fund gained 1.50%, the I-fund added 0.10%, and the F-fund (bonds) lost 0.08%. 

The is the kind of action we were looking for, although we did not know if it would be up or down.  We expected a strong breakout from the tight range, but if you remember, we also think this could be a "false" breakout.  See yesterday's commentary for more on that.

While I don't want to get too bearish here, because this is certainly a strong market with momentum, these kind of "blow-off" tops can be a sign of a last push higher by the indices before another pullback.  We saw similar action in early November when a steady rally was punctuated by a large one-day gain, and the following day put in the high before 50-point drop in the S&P 500.
                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Yesterday's rally came on decent volume - compared to the recent light holiday trading - and that might be enough to pull more folks into the market for another day or two, but we have a series of reasons why we think a pullback is imminent.

Yesterday's rally saw a high of 1276 in the S&P 500.  That was 124-points above the 200-day EMA.  If you remember, we talked about the market possibly getting tired when it when it gets 125-points above the 200-day EMA, just like it did last April.  See the Decemeber 13 commentary for more on that. 

I also had a couple of reasons to believe that 1275 could be the top of this leg higher.  One being that it looked like the S&P would hit 1275 about the same time the 200-day EMA hit 1150 - that 125-point spread.  The other was because the November pullback was 25-points, and that made a 25-point breakout above the prior high of 1225, more plausible.  Now the possibility of a pullback to 1230 looks ripe.

Tomorrow I will go over all of the indicators that we are seeing that make it tough to stay invested, despite the strong momentum and trend.  However, in this bull market, being out the market is more of a risk, but we would still prefer to miss pullbacks and buy dips.

Tomorrow I will also try to go over the "As goes January, so goes the year" theory.
 
The TSP website struggled updating their share prices for yesterday's first close in 2011.  I know they eliminated the L-2010 fund effective immediately, so perhaps that is what caused the delay 

The prices were updated and posted almost 4 hours later than usual, and Trader Fred and the Ebbchart System rely on these prices to do their daily analysis, so I suspect their reports will be late today.  I usually get them uploaded before midnight each night, but I don't think I will wait up for them.  I will get those reports posted Monday morning.

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

Tom Crowley