Is the Bull Market Waiting on a P2 Rating?

You can't ever be absolutely sure what Mr. Market is thinking at any point in time, but it sure looks like he is waiting on our Psychology Composite ranking to move to a P2.  It is at a P3 right now, and that is an improvement from levels of the past, but it is having a hard time overcoming the natural resistance.  Our overbought/oversold oscillators told us last week that the easy lifting of the advance had been accomplished, and now any further rally had to be earned by some new fuel being thrown in the mix.

Below is a plot of the S&P 500.  As you can see, it was up in January, February and March - largely a rally from the P1 rating we had in October of last year, then we had a sideways (lower high) market in April, and then we had a down market in May that produced a very oversold condition and several key Psychology indicators (insiders, surveys, etc.) moved our Psychology Composite to an improved P3.

When we reveiwed the oversold indicators as July was ushered in, along with the deterioration in some of the Psychology Composite indicators, our guesstimate of four months ago came back in vogue.  So, we're still expecting that this market will probably go through those flips and flops of digestion until we get closer to the election.

Don Hays

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