The Stock Market has reached resistance

The stock market has gained since the February 11th low. Friday reversed downward after reaching resistance stemming from the mid December low. From a technical vantage point, the low in mid December is just the beginning of resistance. It will take huge volume to push upward through the rest of the resistance. Fundamentally, there is increasing evidence that the U.S. economy is weakening. This makes it very unlikely that the current bullish trend will continue. Factory orders have crashed for fifteen straight months on a year over year basis. In the last 60 years, there has never been a time when there were this many straight months of weak factory orders without a recession. But, how would we know if we were in a recession? It increasingly seems that government financial reports are made up of whole cloth. This must-read article explains the problem.

The S&P is the strongest, next is the DOW and the Nasdaq Composite is the weakest. My table of relative-strength stock-market sectors shows big gains for the cyclicals and the technology group at the expense of consumer staples. This is the same thing that happens during stock market rallies. But, in a number of cases, the sectors’ rise is bound to be short lived. The best example is the huge 26% gain in the Basic Materials Sector during February. There is a gale of deflation circling the world that will be in place for years due to the huge oversupply of commodities. China, for example, has made 100 years worth of concrete.

Here’s the chart of the S&P 500:

sp500

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