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.
