There is still too much selling pressure in the stock market

The stock market is unable to move higher in the presence of the current high level of selling. The selling hasn’t been big enough to threaten the August 24 lows yet; but it has been enough to thwart all the rallies. Before the market can go up, more weak holders (i.e., those likely to sell) must sell to those who’ll hold and wait for the market to rise. All three stock indexes have now broken their long-term bullish trend; the Nasdaq Composite joined the S&P and Dow this week.

My chart dividing cyclicals by consumer staples shows the cyclicals plunging again this week, just as it was about break past its bearish trend line.

The stock market sector table shows losses in all four stock sector groups. The Technology Group was strongest losing only 0.04% in relative strength since September 1. Next, was the Financial Group, where the Banking, Finance and Insurance sectors all lost a bit less than 1% in relative strength. The Consumer Staples Group lost 0.16% as some of its sectors zoomed higher as defensive plays (e.g., the Utility Sector up 3.1%) while others got walloped (e.g., the Agriculture Sector lost 8.6%). The Cyclicals Group lost the most -1.76%. Almost all its losses came from just three sectors: Energy (-4%), Basic Materials (-11%) and Machines (-7.1%).

The Basic Materials sector has been bearish for a couple of years heralding what David Stockman has been predicting: a world-wide gale of deflation caused by central banks making a fog over many asset classes (i.e., through preventing short-term interest rates to be market based) and by China production of humongous amounts of everything that were not needed and won’t be needed for a long time. China has made more concrete, for example, than it will need in the next 100 years. The first effects of this deflation are already being felt in the bankruptcy of American coal companies and the reduction in international trade and shipping.

Below is the relative strength chart of the Basic Materials Sector:

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