The stock market forms a wedge pattern

The wedge pattern signals weakness. It is present in the S&P 500 and the Nasdaq Composite, but not in the Dow. The market’s fundamentals are very weak. The ratio of sales versus inventories continues to worsen as inventories pile up. The last time it was this bad was before the most-recent recession. The stock market’s valuation, based on GAAP earnings in the S&P 500 is roughly 24%; this is nose bleed area (i.e., 15 would be a more reasonable number if our economy was in good shape). The Dow is just under a wide resistance area where the price was during most of 2015. The Dow has failed seven times to break through to clear space above it. It is much more likely that the stock market will sink that go higher on its eighth try.

My table of relative-strength stock-market sectors shows gains for the defensive consumer staples group and a bit less for the cyclicals group. The Finance and Technology groups lost relative strength. This shows a stock market that is defensive. Underlying this is the large gain of 3.9% in the Utilities sector. The Automobile Sector has exploded higher with an increase of over 10% in March. But car companies have been scraping the bottom of the barrel for customers leading to large increases in broken car loans and leases. In a couple of years this huge mountain of cars will come off lease and destroy the used-car market. Who will buy new cars when good used cars will be available very inexpensively.

Here’s the chart of the S&P 500.


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