Another look at 2006
                         
Despite the Dow losing 14-points on the day, stock indices closed mostly higher on the day and the S&P 500 closed at a new 2-year high.    
                                  
For the TSP, the C-fund was up 0.26% on Monday, the S-fund gained 0.33%, the I-fund added 0.20%, and the F-fund (bonds) slipped 0.06%.  

The S&P 500 has traded in a very narrow ascending trading channel (C) since the early December spike higher.  At some point this trend will break down, and many times the break from a narrow trading range can be sharp, but you never know how long the trend will last.   
                      
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

I am reminded of 2006; another chart that had many of us waiting for a correction, but each small pullback was bought quickly and we didn't see a breakdown until February 2007, over 7-month after the rally began.

This 2006 chart looks very similar to today's action.  After a 4-5 month consolidation, the S&P broke out and rallied for another 5-months before that February breakdown.  This year, we just broke out of a 6-month consolidation, and as you can see above, the rally out of that break has just begun - by comparison

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

Taking a longer-term view of the S&P with the weekly chart, this rally has the index near the middle of a large rising channel.  That is a lot of room on the upside, but of course a pullback to the lower end of that channel would certainly do some damage should that occur. 

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

Sure, we will have pullbacks here and there, but I think getting too bearish is a mistake.  That said, the sentiment surveys are telling us that the dumb money is not very bearish at all, and that is a concern for the short-term, and could be a reason to step aside temporarily.  But in the intermediate-term, I don't see a problem yet. 

You can see that the dumb money put/call ratios are still hanging around the very bullish levels (overly bullish), and that could be a short-term bearish sign for the market.   
                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The smart money put/call ratio is back near the bearish levels, which is bearish for stocks, but this indicator will move down as stocks go up as the smart money adds more and more protection to their portfolios to protect gains.  If we start seeing 1.40 again, I will take that as my queue to step aside for a while.

The reason it is tough to get bearish now is the strong holiday seasonality coming up.  This is no guarantee as we've actually had some mediocre Christmas / New Year weeks in the last few years, but history is on the side of the stock market next week.


                                Chart provided courtesy of www.sentimentrader.com

But the light volume holiday trading can also be a detriment in that the indices can be pushed around more easily.  Holiday trading can also be tricky as you can see the market move one way before the holiday and reverse the other way after.  That is quite common. 

Administrative Note:  One of our long time forum members, Intrepid_Trader, will be starting a new Premium Service here on TSP Talk.  Intrepid developed his own trading system and has had very good success over the years trading his TSP account, and IRA accounts, and has been consistently near the top of our AutoTracker. 

We are offering a free trial to the service for the next several weeks.  You just need to create a login and password in the premium services area (if you don't already have one.)  No payment information is needed.  Just create an account.  Sign in, and you will have immediate access to Interpid Trader's Investment Strategies Reports. 

The reports will be available by 10:30 AM ET each morning, but his active system signals are not always known until 11:00 AM to 11:30 AM ET, so could see multiple updates on some mornings.  Because of this, you may want to either get into the habit of checking the reports each morning after 11:30 AM ET, and/or sign up for the Intrepid trader email alerts. 

We will send the emails, but unfortunately we can not guarantee that you will receive them timely as not all mail servers are created equally - especially your work servers, which are likely putting the emails through several filters.

Thanks for reading!  We'll see you tomorrow.

Tom Crowley