Here are a couple more things showing up that are small warning signs. First is the ratio between the S&P 500 Equal Weight Index (SPXEW) and the S&P 500 (SPX). It is close to breaking below its 20 week moving average. The S&P 500 index is weighted by market capitalization so the larger stocks have more influence on its movement. SPXEW is weighted equally so a ratio between SPXEW and SPX will show money moving between large cap and mega cap stocks (because SPX is made up of large and mega caps). When the ratio moves down it indicates money moving into mega caps. Possibly from a flight to safety, but is most likely market participants buying companies with global exposure in reaction to recent dollar weakness. A move below the 20 week moving average often results in a choppy market for a few weeks due to the rotation.
Another thing that is a bit concerning is the NYSE Advance / Decline line (NYAD). Since the lows in October NYAD has lead advances in the S&P 500 index. It routinely broke to new highs ahead of SPX. Now it is breaking below its last valley ahead of SPX breaking recent lows. This is a change in character where NYAD is starting to lead to the downside. Keep an eye on this because if the trend continues we’re probably looking at a more serious decline than we’ve seen in a long time.
Keep in mind that these are small warnings at the moment. My core indicators aren’t being seriously damaged by the recent volatility. Only my measures of trend and risk are seeing deterioration this week. So far this looks like a risk event where everyone is worried about Greece or maybe protecting themselves from a bad payroll report on Friday. It doesn’t look systemic in nature…yet. Small things like NYAD and the number of new lows can warn us if they print unfavorable numbers. And of course the most important thing you should be watching is the range.