Market takes a breather becomming a little defensive

The stock market moved sideways for most of last week except for the technology heavy  Nasdaq that lost ground. The bad economic news released on Friday morning showed that very few people got payroll jobs and roughly the same amount of people went into Social Security Disability. This was release before the market opened and lead to a gap down at the open. But, all three stock market indexes gained during the day. The reason the Nasdaq lost more was because its gap down was so much bigger than either the Dow or S&P 500. It is much more important to see the action after the market opens then where it starts. We have not seen evidence of distribution recently. Friday’s pattern is quite likely accumulation.

The picture created by the Stock Sectors’ Relative Strength Table reveals widespread weakness. Defensive consumer staples was above the other three main groups lead by
utilities up 1.7% in relative strength in only one week. Basic materials was a big loser mirroring the lack of pricing power in the economy. Other cyclical sectors’ losers included automobiles (off 2.2%), transportation and consumer durables. The overall graph of cyclicals versus consumer staples has turned bearish. Bottom line, we must wait for selling pressure in the stock market to dissipate.

Here’s the Basic Materials’ Sector’s Relative Strength Chart

basic_materialsHere’s the Automobile Sector’s Relative Strength Chart

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