Profit taking and dip buying
                         
Stocks rallied yesterday after the release of a strong weekly ADP jobs number.  The Dow gained 32-points but the broader indices performed even better.
                                 
For the TSP, the C-fund was up 0.51%, the S-fund gained 0.87%, the I-fund lost 0.74% after a strong day for the dollar, and the F-fund (bonds) was hit with a 0.56% loss as bond yields continue to move higher. 

The strong weekly employment report seemed to get investors interested in buying before this Friday's December jobs report.

The S&P 500 has been relentless in its ability to stay within the very tight ascending trading channel, despite what seems to be some decent swings.  The rallies and declines are nearly hitting both sides of the range each day.

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

The interesting recent development has been what seems to be a decoupling of the S&P 500 to the dollar.  That is, the dollar was up strongly yesterday, but so were stocks.  We had become accustomed to seeing the two move in opposite directions. 

I was suspecting that the S&P's inability to move higher last week (it moved virtually sideways) while the dollar declined sharply, could be a sign that stocks were weak, but the fact that the dollar rallied sharply yesterday and stocks also moved higher, makes it more likely the it is at least a temporary decoupling.  The pre-holiday weakness in the dollar has been recovered - typical holiday action.

The bull flag we talked about the other day continues as the dollar is back testing the higher end of the flag, and it is also testing the 200-day EMA. 
                         
                         
                        Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Will we see a move back down toward the bottom of the flag, or can the dollar break above the flag and the stubborn 200-day EMA?  If the S&P and the dollar are decoupling, it won't matter all that much to us - that is unless you are in the I-fund, in which case the dollar still plays a big role.

Other than that, we still have a few troubling indicators out there, which I believe could keep stocks from moving much higher in the short-term.  But there also seems to be a bid under stocks as dip buyers have not been shy.  I would look for sideways to modestly lower prices going forward until the indicators move away from their extreme readings.  But I wouldn't bet against this market for too long.

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

Tom Crowley