The Stock Market is still in a Correction

he S&P,DOW and Nasdaq Composite advanced during the last week, almost reversing its drop earlier in April. But a wave of selling on Thursday occurred just as the market moved close to surpassing its early April highs. This pattern is the opposite of that seen when resistance is about to be broken. There, you see non-wavering strong moves on sizable volume. Like a freight train. The down bar on Friday, even though it was tepid, confirms Thursday’s weakness.

GDP grew by 2.5% in the first quarter. But this was under economist’s expectations of 3.1% growth and well under the 4.4% average of the last nine recoveries. The paltry growth in the first quarter is more worrying considering the gain was only 1.5% after subtracting restocking. At least 2.5% (i.e., minus restocking) is needed to support increased hiring and investment.

The economic weakness is reflected in our Stock Sectors’ Relative Strength Table. Transportation dropped a very-large 4.5% in April after gaining throughout the first quarter. Transportation provides a window into the overall economy by virtue of the amount of goods shipped. Consumer Durables’ loss of 2% is more evidence. Not all was gloomy, however. The energy sector lost big suggesting lower gasoline prices in the near future and retail and real estate gained. The bottom line is that consumer spending is holding its own while business investment is hurting.

Here is the relative strength Transportation Sector:transportation

Here’s the relative strength chart of the Energy sector:energy



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