Fund share prices as of: 5/18/07

Fund -	G Fund	F Fund	C Fund	S Fund	I Fund
	11.92	11.31	16.97	20.36	24.35
$  Change -	+0.00	-0.03	+0.11	+0.14	+0.13
% Change -	+0.00%	-0.26%	+0.65%	+0.69%	+0.54%
	L2040	L2030	L2020	L2010	L Income
	18.26	17.36	16.52	15.18	13.16
$  Change -	+0.09	+0.07	+0.06	+0.03	+0.01
% Change -	+0.50%	+0.40%	+0.36%	+0.20%	+0.08%

The freight train keeps a' rolling, but...

Stocks continued their seemingly endless upward momentum on Friday.  Now we enter a post-options expiration week and that could prove to be a test for this freight train that keeps on rolling. 

We can make a list of several reasons why the market should slow down here, but the fact is, nothing seems to be able to stop the momentum.  But even a freight train can run into trouble.  We don't know when, but something will come along and derail this train when we least expect it.

               

As you know, I have been expecting it for sometime, and I'm afraid that the fact that it hasn't come yet means it could be painful when it does come.  The S&P 500 is now just 2% away from topping the all-time high made in early 2000.  Something tells me we will see that new high but then it will be time to back off again.  That could happen as early as this week.  If we do see a rally to those new highs this week I may take the small gain I make and run.

The Memorial Day chart tells us that we typically see weakness this week before the holiday, but that things pick up nicely the week after.  As always, seasonality data is not a primary indicator but rather a small breeze that could either be at the market's face, or at its back.  This week it will be in the face of the market.


                                     Chart provided courtesy of www.sentimentrader.com

I moved into stocks last week based on Trader Fred's buy signal and confirmation from the sentiment surveys.  I had been 100% F fund and bonds have been pulling back.  Bonds seem to be falling because of the data which suggests a rate cut may be further off than everyone originally expected, but we discussed the evidence of a possible rate cut coming in the near future based on the activity of the 90-Day T-Bill and the Fed Funds Rate.  Looking at the chart of the AGG, a bond IFT, it looks like bonds may be at some support and we could see a drop in yields and a bounce in the F fund.  If bond traders are sniffing out a rate cut we just may see that bounce.


                                    Chart provided courtesy of www.decisionpoint.com

My guess is we'll start seeing evidence of more slowing in the economy which will spook stocks a bit, and we'll see a move back towards bonds.

So while momentum is still in the favor of stocks, seasonality may be a minor nuisance.  Stocks are not even overbought at this level, but there is strong resistance just above the S&P 500 at the 1552 area.  The sentiment surveys are still showing the herd as too bearish (which is bullish for stocks) but we are now seeing signs that the smart money is backing off as well.  A mixed bag.

The S&P also broke below support a week or so ago and while the trend is decidedly up, that old support is now acting as resistance.  I'm watching 1500 as my next exit point if things get rocky.  On the upside, I will get very antsy if we see 1550. 

                                   Chart provided courtesy of www.decisionpoint.com

Read Trader Fred's TSP Trader System commentary on the system page.