The S&P and Dow are curling over

The Dow has been slowly curving down since the middle of December. The S&P is following the same pattern but only since early January. The Nasdaq Composite has been bullish, dropping only a bit this week. Obviously, this is not a bullish pattern. If it were, all systems would be go, all rockets firing and all three major stock indexes would be advancing, led by the Nasdaq Composite.

My chart dividing stock-market cyclicals by consumer staples has been dropping hard since early December showing that the defensive consumer staples are much more favored. Within my Cyclicals Group of eleven sectors only the Automobile, Leisure and Transportation sectors are significantly bullish. The Automobile sector has huge financial trouble over the horizon as millions of cars that were leased are coming off lease to flood the used car market. As used car prices become less expensive due to overwhelming supply, that will hurt the new car market due to the large price difference between new and used cars.

The stock market is still a bubble. The price of an average share is over twenty-five times earnings. This is a ludicrous high. Historically, the multiple has been thirteen or fourteen times earnings. After a years-long bearish trend, stocks will again return to that multiple and probably be a good buy.

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