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The market is fluctuating even after the Fed's QE Infinity program and the ECB's bond buying plan, but not because those efforts can't help. It's because the hope for those measures has already been priced into the market. Stock market gains preceded the news and ran through the announcements, leaving us today with a "show me market." Investors now want to see the impact of the measures they so surely swooned. For this reason, I suggest reducing risk at least through October, and keeping it light or hedging against downside before reevaluating after the election.

The problem is that as American companies report earnings this quarter, the news is not likely to be great. Analyst expectations are for total corporate earnings to decline in Q3, marking the first such drop since The Great Recession. Specifically, expectations are for a 3.2% year-to-year EPS contraction for the third quarter. So the news for corporate institutions is not likely to be good, and yet the SPDR S&P 500 ETF (NYSEARCA:SPY) is sporting a third quarter appreciation of 6.3%, after adjustment for dividends and splits. The Dow Jones Industrial Average ETF (NYSEARCA:DIA) was up 5.0% in Q3, and the PowerShares QQQ (NASDAQ:QQQ) gained 7.2%. Those paper profits will now be tested, and so stocks must show the market they're worth their while. To hedge against market risk beyond diversification, you might use the ProShares Short S&P 500 (NYSEARCA:SH), the ProShares Short Dow 30 (NYSEARCA:DOG) and the ProShares Short QQQ (NYSEARCA:PSQ). For a little more punch for your dollar, you could also employ the securities which magnify the downside bet, like the ProShares UltraShort S&P 500 (NYSEARCA:SDS).

Meanwhile, just when we thought Europe was resolved, the people of Greece and Spain took to the streets and reminded financial markets of their pains. With fear that social unrest could still undo governments supportive of austerity, bond yields rose against the tide of potential ECB purchases. Then came evidence of further economic damage caused by that same harsh austerity served up to the Greeks, as their GDP contraction was reported worse than expected. Thus, the iShares S&P Europe 350 (NYSEARCA:IEV) made a sharp reversal, and continues to look threatened for as long as the people of Europe are unsatisfied. However, I would look for European shares to get a boost when the ECB actually begins buying sovereign bonds. Barring events and disruption, there remains opportunity in European stocks similar to that seen in the U.S. in 2009.

The market, she is an impatient dame, and she is not happy with what she is seeing in the traditional earnings warning season. Yesterday it was Caterpillar (NYSE:CAT), and today its Mosaic (NYSE:MOS) and Express (NYSE:EXPR) offering up bad news. Add to this, an ominous fiscal cliff here at home, costs mounting for Germany to bear in Europe, incredible acts of class warfare waged in France, clouds over Iran and an unstable geopolitical scene generally, and you have the makings of a bad fourth quarter. The market will not move higher now unless and until she has reason to. I don't see any good reason potentially appearing until after the election, but even then, it will be suspect and tested.

Source: Sell The 'Show Me' Market