Bullish sentiment is at extreme levels; in fact we're seeing levels last seen in late 2007 at the top of the bull market rally that began in 2002.
The VIX, the "fear index," closed today at 17.39 which also indicates extreme complacency and confidence in the markets going forward. Furthermore, major indexes are overbought and overextended on a technical basis with high RSI and Stochastic readings.
While the markets seem sure that the Fed and QE2 have their back covered, I would suggest that it's a time to enjoy the Christmas cheer but also be watchful for a painful New Year's hangover when January comes around.
But for today, the markets and economy partied on with FedEx posting positive results and an improving outlook for 2011 and a positive report from the Philadelphia Fed regarding business and manufacturing conditions in the mid-Atlantic region.
The House of Representatives is wrestling with the tax cut/stimulus bill and its passage is absolutely required for Santa to continue his rally.
Today's action brought the Dow Jones (NYSE: DIA) to two year highs and all major indexes were positive with the Nasdaq (QQQQ) rising +0.77%, and the S&P 500 (NYSE: SPY) adding +0.62%.
Commodities showed renewed strength, as well with both Gold (NYSE:GLD) and Oil (NYSE: USO) making gains, but things weren't as positive in China where the Shanghai Composite gave up 0.46% and remains mired below its 50 Day Moving Average.
Bottom line is, "make hay while the sun is shining but watch out for an unexpected hail storm."
Disclosure: Wall Street Sector Selector continually trades a variety of exchange traded funds and positions can change at any time.