Here's a daily chart of the Wilshire 5000 which represents the entire US equity market:
This is a weekly ratio chart of the Rydex S&P Equal Weight ETF divided by the S&P 500 going back to the March 2009 "V" bottom. What I'm attempting to show with this ratio chart is that the bulk of stocks in the S&P 500 are not participating in the present rally and that the index is being carried by a minority of large issues.
Here's a detailed explanation of how to use the chart. The S&P 500 is a market capitalization index of the prices of 500 large cap stocks actively traded in the U.S. A capitalization weighted index is an index whose components are weighted according to the total market value of their outstanding shares. The companies with the largest market capitalization, or the greatest values, will have the highest weights in the index. As an example, a gigantic company like Exxon Mobil would exert much more pricing influence on the S&P than the smallest market capitalization stock in the index.
The Rydex S&P ETF, on the other hand, tracks the same 500 stocks as the S&P but instead of weighting each stock by its market capitalization, it gives equal weight to every individual stock in the index.
It is clear from the chart above that the bulk of small cap stocks are still not participating in this rally and this must change soon if we're going to sustain this upward move into the rest of the year.
As per our inter market relationships this is a positive for stocks in the short term. I'm now looking for TLT to challenge resistance at 115. As long as the US economy cointinues to gather upward momentum I believe TLT will fail to breach this resistance area.
The Treasury market and the US Dollar hold the keys in assisting us in understanding where equities are headed in the intermediate term. And so far, both market's message is that stocks are headed higher!
Here's the US Dollar as of Friday's close:
Finally, let's look at Gold:
I've identified what I believe may be the final touches on an inverse head and shoulders formation that would be very bullish for Gold and project a price up to the $2,025.00 level. However, I'm presently ambivalent on Gold's direction based on what I'm starting to believe was a "blow off" top in August/September 2011:
I'm not predicting that the gold bull market is over. What I am saying is that my confidence in it continuing has been undermined by the chart above as well as the price action of the past few weeks. A consummation of the inverse head and shoulders pattern I identified above and a new all time high would allay these concerns.
Have a great week!