What's the Stock Market Waiting On?

The stock market is waiting on a little clearer message about the election.  The transition is certainly following a mold.  We moved from very oversold the first of June, then moved to very overbought, and now it certainly seems to be headed back to the oversold condition.  Just take a look at the McClellan and 21 Day Oscillators for all exchanges below.

I have to admit, these kind of periods stink.  We started the year with a bang, and then as our Psychology Composite touched P5, and some of our best forward-looking indicators turned a little squeamish for the short-term, we started suggesting that the stock market would probably have to wait until close to the election before it really reflected the bullish conditions that our Monetary and Valuation Composites were still predicting.

I'm obviously repeating myself, but we have on of our best Psychology indicators, the Rydex Ratio, continue to be out of sync with our bullish long-term scenario.  Our "druthers" would be that we would like to see this indicator back under the 0% line to help forge an infrastructure that would have some real staying power for future advances.  You can see the Rydex Ratio's recent trends in the chart below.

Putting it all together, the next 1-2 months appear to be a time of wondering how Europe is going to evolve, along with the outcome of tensions in the Middle East.  Also, the US election will be foremost in the minds of investors, as the deadline for restructuring the debt in this country approaches.

Interesting times, huh?  The stock market is the world's best barometer, so we'll continue to watch and listen.

Don Hays

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