We often watch the performance of cap-weighted indices versus the equal-weight counterpart.
Why? Because divergences in performance often signal market turns.
Today is no different as we display the performances of the S&P 500 cap weight index versus the S&P 500 equal weight index.
And, as you can see, there is a wide divergence brewing.
The past 2 times that the cap-weighted index was performing much stronger than the equal-weighted index, stocks were near a short-term high. And shortly thereafter they declined sharply.
We are seeing the largest spread in the past 6 years between the two indices right now and the question we should be asking ourselves is: Will the result be different this time?
Might be time to monitor your risk trading profile. Stay tuned.