Stocks rallied strongly out of the gate, but as we talked about yesterday, the market has been getting stretched to the upside and the indicators were getting overbought.  We were looking for some selling and we seem to be seeing the start of a pullback.  Is this going to ignite the test?

I was actually impressed with the way the market held up yesterday.  The early gains were lost and the market had every reason to just give up and head down, but we actually saw some buying into the close and it kept things respectable.

This recent rally is now flirting with the upside trendline of the overbought/oversold indicator.  Will that be enough to put pressure on stocks, or can this rally continue?


                                    Charts provided courtesy of www.decisionpoint.com


The recent AAII Investor Sentiment Survey is still overly bearish with the bulls coming in at 41% bulls, 43% bears.  That is actually bullish for stocks from a contrarian viewpoint.  This survey has been consistently over-bearish for many months now.  The last overly bullish reading came before the February sell-off and for some reason, the herd has not really trusted the market since.  I had figured this was why the market refused to correct, but even when this recent correction started, this indicator never moved higher than a neutral reading.  Very strange.


                                    Charts provided courtesy of www.decisionpoint.com


On the other hand, the TSP Talk Sentiment Survey has fluctuated much more giving us some decent buy and sell signals.  Yesterday's 59% bulls, 27% bears reading, a 2.19 to 1 ratio, puts that system into a sell signal for next week after being on a buy for a few weeks.  The system is certainly not correct every week, but it is up over 14% in 2007 and has still not had a losing month all year.
                                
Fred's TSP Trader System remains on the sidelines (F-fund) and shows no signs of wanting to move back into stocks.  Does that mean we are ready for another move lower?  Read what Trader Fred has to say today on his system page.

The EbbChart System has continued to play in the I-fund this week and is doing quite well.  This system is up an impressive 17.3% in 2007.  So where will it be for Monday?  Find out the ebbchart system page.

I'm looking for the market to give back some of the recent gains in the near future.  If I am wrong, we will be seeing 3 or more closes above the 200-day moving average and would mean I may have to rethink our short-term double bottom theory, and start to embrace a "V" bottom possibility.  But yesterday's action tells me the market may be ready for another rest.

That's all for today.   I am currently 100% F fund.  Have a great weekend!

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