Not that a little pause would be a bad thing, but we have a possible flat top forming, and flat tops tend to precede pullbacks.  If we don't see a higher high today (above Friday and Tuesday's highs) we could see further digesting of last weeks gains leading into this Friday's jobs report.

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

Last week's rally validated the longer-term bullish trend and support, as seen on the weekly chart below.  This coincides with what I have been looking for, which was an overly bearish sentiment rally.  The fact that sentiment was so bearish at a time when the S&P was testing long-term support (below chart) and the 200-day EMA (above chart) just made it too tough for me to get too bearish.  But, while I was looking for a rally, I am also cognizant of the fact that this rally could be a fake-out. 
                               
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

I am always concerned that some market moves happen to get us all to lean the wrong way.  I mean, how many of us are not aware of the economic and debt problems we are facing?  The conspiracy theorist in me makes me believe that the big money on Wall Street knows how bearish investors had become over the last several months, and if this market was going to rollover, how could they sell at higher prices before we do rollover?  How about a strong rally they gets bearish retail investors (the dumb money) to dump all of their money in the markets again?

Remember 2007?   We saw a nasty sell-off in the summer of 2007, but an equally explosive rally into October, all while the sub-prime housing market was collapsing, along with the economy.  Those who sold that rally were the only winners during the following 18-months.
                           
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

I don't want to get all bearish because I want to take advantage of what the current market will give us, but I am going forward with skepticism until I see a breakout to new highs hold - unlike what happened in October 2007 where they failed within a few days.

This put/call ratio chart shows that the dumb money has found interest in the market again.  They are not at extreme levels yet, which could mean we have more upside to go, but the indicators are hitting the upper ends of the recent downtrend.  If this rally continues we should see the CBOE and Equity put/call ration (10-day MA) move toward the extreme readings.


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

Friday we get the June jobs report.  Estimates are for a gain of 110,000 jobs and an unemployment rate of 9.1%.  These numbers are not overly exciting and as we know, it is not the target number that is important.  The market has likely priced these numbers in already.  It is how close, or far, the numbers come in to the estimates that will move the market. 

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