Over the weekend, Carl determined to place collectively the chart beneath. We frequently make comparisons between the SPY and its equal-weight sibling, RSP. By figuring out divergences between the 2 ETFs, we will see whether or not the mega-cap shares are main the cost or whether or not a rally is supported by the remainder of the index.
At present we now have rising tops on the SPY, however declining tops on RSP. This alone tells us that market participation is way from broad. The Apples of the world are main the index. And, at this level, these Apples of the world are barely holding the market collectively proper now because the SPY is wanting very toppy.
Now let’s add the Silver Cross Index (SCI) which in and of itself is equally weighted. Every inventory is checked out to see whether or not it has a “Silver Cross” or not. A Silver Cross is a 20-day EMA transferring above the 50-day EMA. Sometimes these shares are intermediate-term bullish.
Discover on the earlier value high in February, the SCI was studying at about 80%. On this greater value high, solely about 55% have been on Silver Crosses. That is roughly a 30% lower within the studying and units up a large unfavourable divergence. RSP is confirming the issue because it has a a lot decrease April value high.
Conclusion: Our query is how is the SPX going to start out one other bull leg when the rally is not broad? If the Apples of the world slip, there isn’t any one there to select up the slack. At this level, we see this as an ominous arrange that can probably result in a extreme decline. To see Carl focus on this chart, watch a replay of right now’s DecisionPoint Buying and selling Room HERE.
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Erin Swenlin is a co-founder of the DecisionPoint.com web site alongside along with her father, Carl Swenlin. She launched the DecisionPoint day by day weblog in 2009 alongside Carl and now serves as a consulting technical analyst and weblog contributor at StockCharts.com. Erin is an energetic Member of the CMT Affiliation. She holds a Grasp’s diploma in Info Useful resource Administration from the Air Pressure Institute of Know-how in addition to a Bachelor’s diploma in Arithmetic from the College of Southern California.