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Stock Market Unlikely to Leap Higher Just Yet


We need to spend a few more sessions working off the overbought condition.


On Tuesday I modified the strategy by noting that given Monday's trading pattern we were probably going to get a sideways correction; and that's exactly what we got last week, which brings us to this week.

The call for this week: Speaking to the divergence of the Industrials and the Transports, Bespoke had this to say:

Over the last six months, the Dow (INDEXDJX:.DJI) is up 3.47%, while the Transports are down 7.90%. While wide, the 6-month spread in performance between the two is not out of the ordinary, as shown in the chart. At the same time, peaks and troughs in the performance spread have not really been bullish or bearish for the future direction of the overall market either. While the spread could widen more, it's likely that we'll see a reversal in the relative underperformance of the Transports in the near future, but that doesn't mean the Dow is doomed (see chart).

Obviously I agree, yet it still does not feel like the stock market is ready to leap higher until we spend a few more sessions working off the overbought condition.
No positions in stocks mentioned.
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