Will we get a long awaited pullback?
                         
After a one day break on Thursday, stocks rallied again on Friday with gains over 0.5%, despite some less than exciting economic reports.  Retails sales and the Michigan Consumer Sentiment came in lower than expected on Friday, but this strong market shrugged it off and moved higher again.

For the TSP, the C-fund was up 0.74% on Friday, the S-fund gained 0.71%, the I-fund lost 0.20%, and the F-fund (bonds) fell 0.10%.  For more on the weekly and returns, please see our TSP Weekly Wrap-up.  

The S&P 500 moved up toward the top of the tight ascending trading channel.  The PMO indicator moved back to a buy signal last week, but it has been bouncing back and forth and has not been a great short-term indicator for us.
                        
                       Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Being at the top of the trading channel, we shouldn't be surprised if we see some selling early this week, and with the news of Steve Jobs taking another medical leave of absence from his duties at Apple, the Nasdaq 100 is trading sharply lower in overnight futures trading.  Apple makes up a whopping 21% of the Nasdaq 100 so the pressure will be there, but it seems silly to think that this news should or could effect the rest of the market for more than a few hours or days. 

Perhaps it will just be a good excuse for a much needed pullback in stocks.  It is a reminder to investors that stocks don't go straight up, or straight down.  However, because of the strength of this market, the dip buyers won't be in hiding for too long should we get a pullback.

And speaking of the Nasdaq 100, there is a trend when it comes to Intel earnings and bullish sentiment:

When Intel reports earnings and bullish sentiment in the Investor Intelligence Survey is 75% of the total bull / bear ratio (57.3% were bullish and 19.1% were bearish) the market has a tendency to take a break over the next month.

According to sentimentrader.com there were four times Intel reported and the Bull Ratio was at or higher than 75%, as it is now.  Here's how the Nasdaq 100 performed during the next month:

                                  
                                  Chart provided courtesy of www.sentimentrader.com

We are probably due for a pullback in the neighborhood of 5%, which would be in the range of the average numbers above, and while our indicators agree with this data, they have been telling us this story for some time now.

The 10-day moving averages of the put / call ratios are back screaming for a pullback.  The dumb money is about as bullish is it gets (which is bearish for stocks) and the smart money ratio is down below the most bearish readings we have seen in the last few years.
                         
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

In the past, this was a very good indicator for us, but more recently the bulls have been pushing the market higher despite these warnings.

The TSP Talk Sentiment Survey came in at 49% bulls, 39% bears for a bulls to bears ratio of 1.26 to 1.  Another surprisingly bearish reading (bullish for stocks) from our readers, considering the strong positive trend.  Either investors are getting overly concerned about a pullback being long-overdue, or perhaps the Intrepid_Timer sell signal on Wednesday morning had something to do with negative sentiment on Thursday, the day of the survey.  Either way, the Survey System will remain in the S-fund for this week.

If you missed it last week, we had to change  Intrepid_Trader's username on the message board, and the name of his system.  Apparently "Intrepid_Trader" is already a registered trademark.  He will be going by Intrepid_Timer and the system will be "Intrepid_Timer's Trading Strategies". 

Thanks for reading!  We'll see you tomorrow.

Tom Crowley