Stock Market Week In Review

The stock market gapped up on Friday but did not perform well during the day. It closed below the day’s high, for example. One must ignore gaps when analyzing a day’s movement. The action after the open is what is important. The S&P 500 closed only a little more than one dollar higher than the previous high of July 30. The real test will come when it gets closer to threatening the May 1 and April 2 highs.

Our stock sector report reveals the stock indexes’ overall weakness. First, every one of the four stock sector groups (i.e., financial, technology, cyclical, and consumer staples) has lost relative strength since July 1. The cause of the weakness seems easy to spot as the energy sector increased by a very high 4.9% in relative strength since July 1 – showing increased costs for everyone – and the transportation sector lost 4.5% during the same period mirroring weak economic activity. Another important factor is the continued weakness of the basic materials sector. This again suggests economic weakness as there seems to be very little pricing power anywhere in the economy. 

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