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Can the market race across some speed bumps? Stocks rallied on Friday after yet another weak opening. It has been difficult for the bears to keep this market down for any length of time as almost every intra-day dip is being bought by the close. The Dow gained 44-points on Friday. 
For the TSP, the C-fund gained 0.57% on Friday, the S-fund picked up 1.04%, the I-fund slipped 0.10% because of the late U.S. rally and the strength in he dollar, and the F-fund (bonds) added 0.28%. For more on the weekly and monthly returns, please see our TSP Weekly Wrap-up. As I talked about in the Weekly Wrap-Up, the S&P 500 has been rebounding from every 2 - 3 day pullback since December 1. As bullish as I am because of the action (and that is a warning sign for the market right there) the 146-points that the S&P is trading above the 200-day EMA has me concerned that we could see a pullback or at least some sideways action for a while to let the extremes wear off.  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The sell-off on Friday, January 28 saw the S&P fall below the 20-day EMA, and that was a concern, but of course that ended up only lasting for that one day. Expect bullish outcomes in a bull market. The market has been able to ignore the sentiment extremes from the SentimenTrader.com's Smart Money / Dumb Money Confidence Indicator. Can it do it again? The smart money confidence is now at 25, which is the lowest we've seen since early 2007 (4 years). And the dumb money's 71 confidence reading is off its highs, but still well above the 60 level that becomes a concern.  Taking a look at a longer-term view of the indicator you can see that not all of the extreme readings have led to reversals in the market, but that is bucking the indicator's historical effectiveness.  Chart provided courtesy of www.sentimentrader.com February, historically one of the weaker months of the year, has gotten off to a great start in 2011. Historically the weakness becomes more apparent after trading day number 11. Today is trading day number 10.  Chart provided courtesy of www.sentimentrader.com The TSP Talk Sentiment Survey came in at 44% bullish, 42% bearish for a bulls to bears ratio of 1.05 to 1. That is another buy signal (anything 1.25 to 1 or lower is a buy in a bull market). That means the Sentiment Survey System's allocation will remain 100% S-Fund for this week. While I am bullish and fully invested in the stock funds right now, and I like the fact that our survey shows that there is still quite a bit of bearishness considering the strength of the market (a contrarian bullish sign), we are seeing signs that tell us we could expect some bumps in the road ahead. I don't know if I will have the courage to stay in stocks for too much longer, but fighting this trend has been a bad idea for months now. Thanks for reading! We'll see you tomorrow! Tom Crowley
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