Stock Market Week in Review

One of the most useful technical indicators (there are relatively few technical indicators that are of any use) is the mid point of a past bullish or bearish trend. All three major stock indexes bounced off the mid point of the bullish trend that started late last November. During the rest of the week the mid point was not violated.

This suggests the end of the down draft and makes it very likely that a new trading range will commence. After all, the Nasdaq had reached its aggressive target from its former trading range last  summer. Friday, May 18’s high-volume down day punctuated a bearish climax. This was the biggest down wave in the DOW since the beginning of the former trading range last August.

Stock sector relative strength analysis mirrors this tug of war between bulls and bears On the bullish side are bio-techs up 6.8%, capital goods up 5.4%, consumer durables up 6.7%, retail of 3.3 and basic materials down 5.1 (this is positive because it indicates lower prices). On the bearish side are computer software down 2.9%, technology hardware down 3.5%, semiconductors down 4.8% and transportation off 3.2%. Until the past two weeks it was very unusual to have any stock sector gain or lose more than 3.5% in one month. Large amounts of money seem to be flowing between sectors.

The defensive consumer staples are still way out performing cyclicals. Therefor, it is still too early to go back into the market.

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