WEAK HOUSING IS HURTING CYCLICAL STOCKS...

According to John Murphy, Cyclical stocks are getting hurt by housing. The brown line in Chart 2 is the Housing Index (HGX). The blue line is a ratio of the Morgan Stanley Cyclical Index (CYC) divided by the S&P 500. The chart shows that economically-sensitive stocks have done much worse than the S&P 500 since May and shortly after the peak in housing. Cyclical stocks are very closely tied to the economy. The fact that they're doing so badly suggests that the market is already preparing itself for an economic slowdown resulting from the weak housing sector.

"It's no coincidence either that some of the market's strongest groups have been in the defensive sector. I wrote yesterday about strength in healthcare and utilities. Another group that usually benefits when cyclicals (and the economy) weaken is consumer staples."

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