Stock Market Week in Review

The DOW, Nasdaq and S&P 500 all dropped hard on Friday below the mid point of the prior bullish trend that began last December. Despite recent market weakness, however, there is no evidence of professionals having had a chance to unload their large holdings. Previous bearish trends have been preceded by a multitude of distribution days (i.e., up bars with gigantic volume). The professional are not going to let the market sink while they still have large holdings.

Stock market sector analysis continues to sport large divergences between bullish and bearish moves (sign up for  and get weekly updated tables and charts of stock market sector relative strength analysis). On the bullish side capital goods and consumer durables increased by almost 10% in relative strength in May (3% has historically constituted a “big” move). Let’s add to the bullish column the 4.1% drop in basic materials and the 6.8% drop in energy as it adds up to lower costs for both businesses and consumers. But semiconductors, technology hardware and transportation all dropped. This suggests weakness.

The bottom line remains the strength of consumer staples as compared to the weakness of the technology and cyclicals groups. It’s not all gloom and doom in those groups, however, as real estate, retail, telecommunications and bio-technology all improved. But until the whole of technology turns around along with transportation we must keep our powder dry.

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