The economy may be in better shape than the stock market “thinks”

The stock market was in a bullish trend from the June 4 low through the September 14 high. There has been a steep sell off since the middle of October. Just as technology generally leads the stock market ahead, this time it is leading it south. The Nasdaq (dominated by technology companies) is close to the June 4 low while the S&P 500 and DOW have just broken the mid point of the former gain last week.

Our market sector report shows huge relative strength gains in consumer durables, capital goods and transportation. Big ticket items are being bought and shipped. Under the covers the economy seems to be doing better than it appears. The stock markets’ weakness is easy to spot: the core of the technology group lost between 1.7% and 2.6% in relative strength in November (technology hardware, semiconductors, and telecommunications services).

It is best to stand aside until the stock market gives us evidence of strength.

Here is the transportation sector relative strength graph:

Here is the capital goods sector relative strength graph:

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