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DOW – 18 = 17634
SPX + 0.49 = 2039.82
NAS + 8 = 4688
10 YR YLD – .02 = 2.32%
OIL + 1.74 = 75.95
GOLD + 26.40 = 1189.30
SILV + .64 = 16.41

The recent rally in the S&P 500 has been really, really strong. Today marked the 41st record high close for the S&P. In mid-September, the index dropped, and that continued until October 16th. On October 17th we told you about a bullish reversal pattern, and since then the S&P 500 has gained about 160 points. The S&P 500 has traded above its 5 day moving average for 21 consecutive sessions; this is unusual; it means the rally has been extremely strong and nearly non-stop; there were a couple of days where the index paused, but never really went down. The past 21 days resulted in a 12% gain; that’s like a runner sprinting up a mountain. The market is now extremely overbought. Typically, when the market is overbought, you might anticipate a pullback. We haven’t seen it yet, but we can anticipate and wait for the market to show us.

There are plenty of reasons to think the stock market will continue higher. First reason is that it is in an uptrend right now; a trend in place is more likely to continue than it is to reverse. Another reason is that there is a seasonal tendency for stocks to do well heading into the end of the year. And a lot of institutional investors are looking forward to a positive year and bonuses that come with a profitable year. The stock market in 2014 has not been a smooth ride.

We started the yearly wobbly, with a 5% dip in late January; that scared off some weak hands. Stocks rallied into the summer, and the S&P 500 hit 2000, then we got another 5% pullback; again, scaring off some weak hands. Followed by another rally into September, and then a quick and sharp drop of about 9%, which really did scare many of the institutional investors. Of course this was about the time the Fed was finishing QE3, and many investors were on the short side of the bond market. This was also when the Eurozone started to wobble, with Euro stocks down and Euro bonds down. The result was a flight to safety in the form of US Treasuries at the exact time that many investors were short government bonds. So September was a double whammy.

Now, the institutional players have to make up for their mistakes. Those managers are lagging the S&P 500′s positive 2014 performance, and hedge funds sitting on losses all have to figure out how to make money by New Year’s. Their bonuses and jobs depend on it. The path of least resistance is for stocks to go up. The US economy is showing signs of strength, and there is a seasonal tendency, and the trend is up.