Stocks moved sideways since mid July

The Dow, S&P and the Nasdaq Composite have moved sideways sing the middle of July. It is surprising that stocks have not started to drop given the very weak economic growth, very weak labor market and the very weak retail sales figures (along with very high inventory growth). Within this sideways action, there are winners and losers giving us an opportunity for gains.

My relative-strength sector table shows a stark divergence between cyclical stocks and those of technology. Usually these two move together as they are both considered growth stocks. Sixty four percent (7 of 11) of the Cyclicals lost relative strength while a similar number (71% or 5 of 7) technology stocks gained relative strength. Previously, I have outlined how the top sectors are not supported by fundamental strength. In fact, many have poor sales and earnings!

A truth of technical analysis, discovered by Richard D Wyckoff in the early 1900’s, is that the longer a market moves sideways, the longer it will drop or gain after it leaves the sideways movement. Stocks have been moving sideways, in essence, since late 2014. The S&P 500 is only 4% above its level at the end of 2014.

Here’s the chart of the S&P 500:

sp500

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