Strength is moving back into the stock market – little by little

The stock market is in a very short-term bullish trend since the rout on August 24. Only the Nasdaq Composite returned to it’s long-term bullish trend originating in 2010; the Dow and S&P 500 are still below their bullish trend lines. The failure of price to continue moving down, strongly suggests that the professionals took this opportunity to buy stocks at a very low price. They are not, however, going permit the market to rise until they’re sure that selling pressure has ended. So, a continuation of our long-term sideways move is likely.

The Technical Group rose a very big 1.8% since August 1, the Cyclicals Group was second with 0.47% growth. The Consumer Staples Group lost 0.47% as investors returned to technology and growth stocks at the expense of defensive stocks. The Financial Group lost the most at 1.9% as fears of the Fed raising interest rates took hold. Here are the individual sectors that reversed the Technical Group from weak to strong:

The Pharmaceutical Sector rose from -0.7% up to 1.3%
The Computer Software Sector rose from -4.7% to 3.0%
The Internet Sector rose from 1.7% up to 2.7%
The Technology Hardware Sector rose from 0.4 up to 1.4
The Energy Sector dropped to -0.5% from 2.5% suggesting much lower energy costs. Very powerful worldwide deflation has just begun. The energy sector is one example. Saudi Arabia, West Texas and North Dakota are all pumping as much as they can in order to take market share from their competitors. This has pushed the price of crude down and will continue to do so leading to wholesale bankruptcies at drilling companies.

Below is the relative strength graph of the Energy Sector.

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