Stock Market: weak short term, bullish long term

The &P gained 5% and the DOW increased by 4%. But the Nasdaq Composite only 1.6%. The Dow and S&P 500 signaled weakness by moving above their trend channels and then curving over. The Nasdaq is also weak because it has moved up so much less than either the Dow and S&P. The stock market’s bullish trend started in mid November. A move over the top of a bullish trend channel is usually weak just the same as a move below one. Almost any trading signal, whether bullish or bearish, must be confirmed before firm conclusions can be drawn. There is nothing to prevent the indexes from recovering from their two days of losses and move higher thus creating a new bullish trend channel at a higher angle.

The longer-term view is more sanguine. The stock markets’ bullish trend began in July 2009. The only signal of weakness in the stock markets’ weekly charts is in the Nasdaq 100; it punctured the top line of the bullish trend channel in late March and early April. In addition, September’s high exceeded the early April high but the bullish volume waves have been dramatically lower since then. Neither of these problems are evident in the weekly S&P or Dow.

Perhaps the analysis of market sectors can shed light on the situation. The overall cyclical-staples relative strength graph shows a very bullish trend that has been in place for months with a small dip at the end. However the defensive staples group is way ahead of the other groups at .97% versus -.02% for the cyclicals group and an even worse -2% for the technology group. There are positive notes: consumer durables zoomed higher by 3.2% in January with transportation close behind at 2.6%. Retail had just a modest advance at 1.1%. But two big problems; one new and one still present: technology lost another 7.6% in relative strength with automobiles now joining them by tumbling 3.5%. The economy for the fourth quarter was reported to have shrunk just a little. Perhaps the weakness that’s present mainly in technology is reflecting that.

Here is the daily chart of the S&P

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Here is the weekly chart of the S&P

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Here is the weekly Nasdaq chart

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