Stock Market Week in Review

The Nasdaq Composite was the only one of the three major indexes to exceed the May and June 2011 highs this past month. The DOW closed at the May 2011 high on Friday and the S&P 500 closed a bit below. Is the market correction over? Confirmation is needed for the bullish move Friday because all three indexes moved up to (but did not pass) their recent highs on June 19 and 20. This suggests some weakness because the demand wasn’t enough to push it convincingly past this point. Also, most of Friday’s move was the gap up at the open. History shows that gaps should be ignored when evaluating bars’ strength. The amount that the market moved up on Friday during the day was much smaller than the size of the gap.

Stock market sector analysis still shows large areas of weakness where we should see strength. Automobiles dropped an astonishing 11% in relative strength followed down by consumer durables, transportation and capital goods – all dropping more than a huge 6% (see below). The economy and the stock market is certainly not strong when all these groups are weak. The drop in basic materials gives a clue about our economic weakness. Basic materials has dropped in relative strength for five straight months and for 8 of the last 10 months. There are very few economic sectors that have pricing power. A lot of businesses are just struggling to stay afloat.

Cash is still a good place to be until the stock market confirms its recent bullish moves.

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