The market’s correction will probably be short and shallow

The stock market’s last rally occurred between the April 19 low and May 22 high. Since then,
the market has curled over and dropped a bit. The S&P closed on Friday at 1630 near the day’s low (this is bearish because it suggests that the sellers had no opposition). Another down move to 1608 would bring the S&P to the mid point of the prior gain. A buying opportunity may occur then if the market approaches the mid point softly.

Our relative-strength stock sector report is mostly bullish. Here are some of the high points:
Automobiles zoomed up by over 13% in May. Also improving were consumer durables, retailing and transportation. Energy went down by almost 8%. This helps the economy because it lowers costs. The core of the technology group became stronger: computer software, semiconductors and technology hardware. Defensive stocks mostly crashed: utilities down more than 10% and food and beverage off 5%. Our overall graph of cyclicals versus consumer staples strongly favors the cyclicals. This is also bullish.

Here’s the relative-strength chart of the Automobile sector:

auto

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

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