If you read my 17 July post, you know we are running into overhead resistance.  I made the comment that for the rally to be sustainable we need to see more volume on the rallies and more breadth.  With the Greece and China cans kicked down the road, we could easily see one more rally to new highs this summer.  But the market internals have been very weak over the last few months and that needs to change before I give the all clear call.

This week has been interesting in that the Generals, or the top 50 mega stocks, have taken the lead and broken out to a new high.  But the troops have yet to follow.  So the question is will the troops get up and follow or will the Generals look behind and see they are alone and retreat.  Or will they meet in the middle and regroup.  I do not know, but it makes for an interesting chart.

The Generals are “leading”

In the chart above, I am using XLG ETF to represent the largest 50 stocks.  Eighty percent of its holding fall into the top 5 sectors in the market so it is also a sector play.   The RSP ETF holds the same 500 companies as the S&P 500 index but with equal weights vices the market cap weighted S&P 500 index – so the other 450 stocks represent 90% of its price movement of the RSP ETF.

As you see the largest 50 stocks have broken to a new high while the troops are still trending down.  So will the troops get up and storm to a new high or will the Generals ever look behind.  In the past couple of years the markets have followed market internals which would imply some retreating here.   But the top 50 companies make up the bulk of the market cap of the S&P 500 so they alone can pull the index and TSP C fund higher.  But for a new sustainable leg up in this old bull market, the troops must follow.

Categories: TSP Charts