The Stock Market is Retreating from Resistance

The stock market (i.e., the S&P) has fallen for seven of the last eight days. It is still well above the mid point of the last bullish run. But the close on Thursday and Friday was near the days’ lows. This is bearish. The credit market has been weakening as seen most prominently in junk bonds. Credit markets tend to weaken before the stock market. So, this is a warning sign for the stock market. The increase in inventory levels has been outpacing sales for the last few months. This is a harbinger of a recession and another warning sign.

My graph of cyclicals divided by consumer staples shows the defensive staples in better shape than the cyclicals. This goes along with the findings from my stock market sector table: the Cyclicals Group lost 0.74% since November 1 while the Consumer Staples Group lost only 0.49%. Defensive stocks move higher in relative strength when the stock market is weak.

This gloom and doom news pointing to evidence of a new recession and bearish stock market is actually good news for trading. It’s harder to trade markets moving sideways; Stocks have been moving sideways, in a tight range, since February. Trading will be much easier when he market starts to trend, whether this trend moves up or down.

The image below is the relative-strength graph of the Retail Sector. Despite the good news about consumers in the major media, this graph tells the real story.

retail

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