The Stock Market Correction Continues

This morning, we still have this correction very much in progress.  The year started off with a bang and January 2012 was one of the strongest in history.  But following this surge in the market, our Psychology Composite moved to P5, meaning that there was a little too much celebration to suit Mr. Market, so we've now been digesting those gains.  You can see it best in the chart of the percentage of stocks in the combined S&P 400 and S&P 500 that are trading above their 50-day moving average (orange line).

If I look at so many different examples of relative strength, we see that "growth," especially emerging growth, started taking a hit in early February of this year.  Our guess is that we will have to wait on this impending US election in November getting a little more visibility before the broad US stock market gets ready to regain its upward momentum again.  But probably more accurate, we'll have to wait on our Psychology Composite improving back to at least a P3 rating, and this morning we're still stuck at P5, which you can see below.

That is still our market expectation...very bullish for the long-term (12 months or longer), but still a little queasy for the short-term.  But we're not betting on that short-term expectation very heavily, since the long-term is so much more important.

Don Hays

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