The stock market has entered a new trading range

The S&P, DOW and Nasdaq Composite  made a high early on May 24 but sank into a loss for the day – on very high volume suggesting weakness. Mark the May 24 high as the high of its new trading range. The market sank into a low early on June 6. A wave of buying pushed the close higher to a gain. This low is the trading range’s low. It is still early in this trading range’s development but the subsequent move is bullish: From relatively high in the trading range, there was a two-day bearish turn around on June 18 and 19. This bearish signal was confirmed by a drop below the trading range to its lowest point last Monday. But, it immediately climbed higher, back into the TR on Wednesday and a little higher on Thursday. Friday was a loser, but it stayed within the TR. Friday’s volume was higher than the preceding up bars. Increased selling pressure? Maybe not, Friday’s volume was much lower than the few preceding  down bars. This tells us that selling pressure is receding – it’s just that demand is not a strong as we’d like to see it.

The Stock Sector Relative-Strength Table shows widespread weakness with just a few bright spots. They were in autos, aerospace (big ticket items), internet and telecommunication services. All four groups lost strength except for finance. The U.S. 30-year bond and 10-year note lost ground thereby pushing interest rates higher and strengthening the U.S. Dollar. A strong Dollar with the economy still struggling is the deflationary pattern that the basic materials sectors has been illuminating for quite a few months. Basic Materials lost another 7% in relative strength in June. There are very few sectors of the economy powerful enough to raise prices. Deflation is a time when cash is king. A flood of individuals and businesses have been paying off debt and improving their balance sheets.

The automobile sector relative strength chart:autoThe basic materials sector relative strength chart:basic_materials

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