Underneath the covers the stock market is bullish

The S&P lost 4.5% during October with the Nasdaq Composite and the DOW following suit. This weakness was preceded by sideways motion in September that broke the bullish trend that had been in effect since last June. At the same time additional weakness was shown by those stock sectors aligned with stocks’ strength and economic growth. Specifically, it was weakness in durable goods, consumer durables, semiconductors, computer software and technology hardware.

Today the picture has reversed from that in September. Consumer durables and capital goods both gained, semiconductors pared their losses and transportation zoomed higher. The only exception was continuing weakness in technology hardware. From the point of view of technical analysis, if the drop at the end of October is reversed in early November it will be an indication of significant strength. The market will have been shown to have enough demand to prevent a further drop.

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