The Equal weight S&P 500 has been negatively diverging headline SPX for months
Here is Exhibit A about why you can see something negative but you need to temper how you present (in my case) or react to it (in both our cases).
Equal weight SPX has been diverging since March while the headline SPX motored from the 4200 area to the 4800 area. Yes, it is a danger sign. My mark-ups on this chart prove it is a danger sign to the headline index. This is a chart that is referenced in NFTRH each week (Market Internals segment) and presented on occasion.
Equal weight SPX is actually in a bear market. But with risk still ‘on’ and especially with most market trends still up (including, barely, currently precarious small caps, which should be watched closely here) and considering that this condition has been in play for months, I don’t want to over react. Where it comes into play is when other indicators start marrying it, lining up in unison to herald a dangerous situation. Risk vs. reward already stinks.
The Omicron/Fed taper twofer in November sent knee jerks out of the markets and now Santa is flying around dropping gifts to the FOMOs. Risk by this indicator is and has been high for a while now. I don’t know if Santa is going to get shot down after this week, after January or maybe not at all in 2022. But when I am able to marry my best indicators to each other clarity will come to that.
Meanwhile, I am bull aligned only (with a lot of cash), having a pretty decent year and keeping an eye on the exits, which means keeping an eye on the indicators. Then I’ll realize cash is a position, counter-cyclical assets like gold and quality gold stocks are positions and oh yes, on setups shorting is still legal too. 2022 is going to be interesting.
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