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Dow breaks streak, but broader market contnues higher

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The Dow finally had a negative day losing 13-points yesterday, but the S&P 500, Nasdaq, small caps, and Transports continued to rally with modest to strong gains. The I-fu
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The streak for the Dow is over but clearly the bears were not interested in getting aggressive. Some early losses across the board were bought and the indices churned higher into the close.

Most of our indicators show that investors are quite bullish, and that's not a surprise. The question is, how bullish are they and have we reached a dangerous level yet?

This rally basically started after the 2016 election but we didn't see sentiment get too bullish until more recently, according to many of the measures that we use, like the AAII survey. So in which phase of the cycle of emotions chart are investors in right now? Is the thrill still on or are we closer to the euphoric phase?

The SPY (S&P 500 / C-fund) was down early yesterday but the buyers weren't far off and they jumped on the early losses and the chart has broken through all short-tern resistance. There's no rule that says stocks have to take a break but history suggests that we should expect some kind of digestion of the recent gains at some point, and probably sooner rather than later. That doesn't mean a market top is coming, but expect some volatility to kick in after 5 positive days to start the year.

The small caps / S-fund broke through more resistance after a pullback early on Monday that just about filled that small open gap near 1380. Rising wedges don't tend to break to the upside but this market has not exactly been traditional.

The Dow Transportation Index led the way with a solid 0.8% gain yesterday, and again, the resistance lines have meant nothing to investors and traders who want in on the hot hand.

The EAFE Index (I-fund) pulled back modestly and we will continue to look at those open gaps as eventual downside target.

The dollar is making another attempt at moving back above the support line of the wedge formation. The small rally to start the year failed to hold above that support, but those open gaps are a draw, even if the downside trend is going to continue.

The AGG (bonds / F-fund) was down slightly yesterday and continues to slide lower after the late December rally, as yields move higher.

Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to:

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

Tom Crowley

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