We are still not seeing much evidence that the markets have pushed into a recovery. This week, stocks are down marginally in both the US and abroad. We have seen some improvement from the lows achieved earlier in the year, but the foreign markets are still struggling. The Universe Trend Indicator is Negative, reflecting the lack of breadth of participation in the recovery. The Long Term Momentum and Cash Comparison Indicators are both Neutral. Perhaps the seasonality has now taken over, with summer beginning next week.
The Tactical Indicators remain Neutral. The 10-week has showed no movement from last week, and the triangle pattern is still forming. The Overbought/Oversold Indicator is around 2.6% below the Bull Trend Average, and again this week the MSCI All Country World Index continues to trade sideways between the Average and the Oversold level. The range has been narrow, but the support levels are rising. A 2.53% drop would get us to the Oversold zone. We would expect a stronger, more broad-based recovery to take place after the seasonality effects.
This week, we preview an upcoming report on what we are seeing during the current US midterm election cycle. Along with the seasonality effects, the upcoming election may be providing headwinds to the recovery, especially now with volatility higher than at this time last year and a partial correction and rebound through the first half of the year. We might see this year play out as previous midterm years have, and we discuss the case for why.
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