It Takes Two to Tango in this Stock Market Dance

It is important to know who your partners are going to be in this stock market dance, and if one partner gets out of step, does that mean your investments are going to sour?

It seems like it was just yesterday that we had just finished up January and the excitement was building as the stock market had lifted off...which was then followed by deterioration in our Psychology Composite ranking to P5, throwing cold water on the fire.

At the time, we used that weaker Psychology condition to speculate that the stock market was either going to have a mild correction or have to go through another one of those deceptive dysfunctional periods.  In fact, since this was election year, our guesstimate was that the timeline of this new stock market personality might extend to the fall months preceding the election.  You can see in the chart below showing our best two short-term oscillators that the excitement since the end of January has been best.  Then, last Thursday's action, and this morning's indication, continues to cool the fireworks.

We liked those shooting stars of January a lot more than those jagged trails of the last 9 weeks, but Mr. Market does not seem to give a hoot about what we like.  As we try to preview how we expect the next few months to play out, it is VERY IMPORTANT to remember that Psychology tends to be the better component of our 3 components to call bear market bottoms, BUT in the vast, vast majority of the cases, bull markets do not end until monetary conditions allow it (or force it) to end.  In general, that is the typical personality of the predictive power of those two main components of our Asset Allocation Model.  Of course, the real bottom line, like our title says, is that it takes two to tango, or to produce dynamic bull (or bear) markets.

This morning, we've had our Monetary Composite move back above the threshold into the M1 zone.  And in view of our "it takes two..." theme, this is very, very good news for the eventual life of this bull market. 

So today, we are telling you loud and clear that this bull market is in its infancy.  We have two powerful legs - Monetary and Valuation - that are willing to fight off any efforts to stall out this bull market.

Don Hays

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