The Stock Market Broke Through Resistance But the Financial Sector is Hurting

The S&P and Nasdaq Composite broke through resistance last week; the DOW had been in a bullish trend earlier than the other two indexes. The Nasdaq also broke above its bearish trend line originating from the August 5 and September 17 highs. The Nasdaq is the only index to have regained its long-term bullish trend; the DOW and S&P 500 are still below their long-term bullish trend lines. The stock market is not in the clear as a result of last week’s moves. The huge resistance that awaits them is their old highs. This resistance is powerful because prices meandered around those highs for quite a few months.It will take big powerful moves to blast through.

My chart dividing cyclicals by consumer staples shows the consumer staples hugely ahead of the cyclicals for the last couple of months – but with a small up tick last week. This is a big negative divergence to the stock market where their price action is much more bullish. There is also notable weakness shown in my Relative Strength Stock Sector Table. The Financial Group is a big loser at -2.43% and the only group to lose strength. Near zero, Federal Reserve short-term interest rates have made it an expense for big banks to hold large amounts of client cash. They are starting to charge fees for these large deposits. This is the Twilight Zone. Normally, not to state the obvious, the banks love cash because they can loan it out to make their bread and butter profits.

On the Commitment of Traders chart of the Nasdaq 100 below, the green line in the second to lowest box shows the small traders more short then they’ve been in three years. This is a very bullish signal as the small traders are always wrong at extreme readings.

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