Leadership is important, to the upside and to the downside. Along with indicating the overall status of a rally/bull market or a bear market trend, it can give clues to the internals of the market. For example, this morning the broad SPX gapped up at the open, but the tip of the Tech spear, Semi (SOX) is down.
The SOX > NDX > SPX leadership chain has led this sentiment recovery rally in stocks and with the front end nosing down we should pay attention. Not overreact, but pay attention. SOX filled the gap, which was the objective (if not a stop sign). It could be headed for a test of support and/or a gap and SMA 50 test in the 5200s. Sure looks doable, anyway.
Meanwhile, SPX is merrily gapping its way upward because, I guess, Art Laffer is seeing Unicorns and Rainbows on the Big Beautiful Debt Deal. More to the point, SPX includes multi sectors, many of which would do well in the new inflationary macro backdrop we are scouting.
Here is the status of the leadership chain this morning. It is still intact with SOX thus far on a normal pullback vs. NDX and SPX. If that starts to become abnormal – for example, but losing the 50 day moving averages, the clock could start ticking on an oncoming correction.
