Follow through
                         
Stocks rallied impressively yesterday on mild volume as the Dow gained 108-points making a new 2.5 year high, but again the other indices lagged slightly.
                                  
For the TSP it was all green.  The C-fund gained 0.58% yesterday, the S-fund was up 0.91%, and the I-fund added 0.92% as the dollar continues its slide, and the F-fund (bonds) picked up 0.06%. 

The S&P 500 followed through on Friday's gains, which makes Thursday's reversal day off of support that much more meaningful.  We will want to see last week's high taken out as soon as possible, otherwise I am a little concerned that we could see a repeat of last January's action.


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

In January 2010 we saw the market rally in late 2009 into mid-January but the 1150 area gave it some trouble and after a few attempts to take it out, we saw a sharp 2 to 3 week correction down to the 200-day EMA.  So, I think we just need to keep an eye on our current support lines and if they are broken, it may be best to move aside for a while.

The Dow Transports, normally the leader, is leading in the wrong direction.  We really need to see the 50-day EMA hold, which it has so far.  This looks like a nice area for support, so if it does break, it will be another loud warning sign.

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

The dollar continues its slide and I think we have seen enough to say that we have a new downtrend.  This puts the I-fund very much in play after it lagged for most of 2010.  Look for that old support to act as resistance on any bounce.

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

That's about it for today.  I think the surprise move for this market will be for it to continue higher as many have been calling for a pullback.  That could keep stocks buoyant for a while but these kind of rallies can come to an abrupt end when they do end - like we saw last January - so don't get too complacent, and don't stop watching the charts.  

With the State of the Union address tonight, and an FOMC meeting today and tomorrow, we could see some action in Wednesday's trading.

Thanks for reading!  We'll see you tomorrow.

Tom Crowley