The bulls can't get it done again and may be running out of steam.

The S&P 500 has been up 13 of the last 17 trading days.  That is a nice run but can it continue?  The bulls have not been able to muster enough strength yet to take out the high made in December.  With a typically stronger than average options week more than half over, time may be running out for a high volume breakout.  As you can see below, Friday of options expiration week (blue) is not normally a great day, and the week after options expiration week (red bars) is also weaker than a typical week.

                               Chart provided courtesy of www.sentimentrader.com

Assuming today is not that high volume breakout day I am going to prepare for a pullback.  I know I'm already 75% in the G fund but this is one of the few times that I am willing to take it all off of the table without seeing a lower low first.  I am expecting a pullback to one of the three trendlines I have marked on the chart below.  This may be premature, but the first support area would be in the mid-1180's.  I will worry more about it if we actually get there, but the indicators will give us hints if the pullback will be deeper than that and test points 2 and 3. 


                                Chart provided courtesy of www.decisionpoint.com

The market rarely acts on queue so I don't expect anything I say to turn out exactly as I say it.  I haven't seen the figures yet but the new AAII Investment Sentiment Survey comes out this morning.  I'm getting a sense that people are getting more bearish which is usually good for the market.  Maybe I'm wrong or maybe that sense is coming from reading what the "smart money" is thinking.  We want to listen to the "smart money" and go against the herd or "dumb money".

I saw a stat showing the OEX options traders (smart money) are now buying puts (options speculating that the market will go down) at a 1.75 to 1 ratio to calls (options speculating that the market will go up), which is very high.  The total equity options ratio (dumb money)  is nowhere near as bearish.  This is more ammunition that a pullback is nearing.

That's all for today.  Currently 75% G, 25% C fund but I will make an interfund transfer this morning to move to a 100% G fund allocation for a while.  It will be effective Friday morning.  See you tomorrow.

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