Earnings drop for two straight years but the price goes up

The S&P lost 0.5% in March, the Dow lost 1.4%, but the Nasdaq Composite was flat. The S&P and Dow started March above their bullish trend channels, dropped through their bottom lines and then inched back up last week. The Nasdaq composite has been in a gradual wedge where the highs did not keep pace with the growth of the lows. It suffered a big loss on March 21, but has recovered every bit of it since then. As this little gain progressed, the bars became increasing smaller at they approached their previous high. This is the opposite of the big steps that is typical action when resistance is broken.

An amazing gain of 6.3% for the Automobiles Sector shows how much the stock market is divorced from fundamentals. There is a huge oversupply of inventory at both new and used car lots. Recent articles have warned of a 50% drop in used car prices due in large part to leased cars turning into used cars by the thousands. The big drop in the Basic Materials sector of the last two months underscores worldwide deflation that has led to the crash in the price of shipping containers and the bankruptcy of a shipping company. The large drop in the Transportation Sector is indicative of manufacturing weakness. Or, if not weakness then not growth either.

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