Market internals continue to deteriorate. There is a diminishing number of stocks that are participating in the ride higher. The longer this trend continues, the higher the odds that some type of meaningful correction could occur.
As I mentioned in my previous newsletter, the S&P 500 Index is capitalization-weighted and thus the larger cap stocks account for an outsized portion of the return.
Below is a chart of the S&P 500 Index in the upper panel. In the middle panel is the Equally Weighted S&P 500, and the lower panel is RSI 14 ( a momentum indicator).
Notice how the S&P 500 broke out of a consolidation pattern (shaded area) to new highs. However, the equally weighted index is still consolidating and with falling momentum.
The S&P 500 is advancing on the back of some of the larger stocks in the index while the bulk of the stocks within the index are individually doing much worse.
If you have any questions, please feel free to send me an email.
Craig Thompson, ChFC
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