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posted on 21 June 2017

SP Equal Weight - Sign Of Coming Correction?

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Macro Tides Special Report 21 June 2017

There is an interesting development with the relative strength of the S&P equal weight ETF (EW) to the market cap weighted S&P (the index usuallly quoted).. This may be providing a hint of coming weakness.


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The red horizontal line connects the lows in the EW's relative strength in late June, late October, February, and early May. With 4 touch points this line has some value. On May 11 the relative strength of EW closed decisively below the support line. Over the last week it tried to get back above it, back has turned back down. The return to the break down is classic charting.

The weakening in EW's relative strength is one more piece of evidence that the odds of a correction are rising. Yesterday's reversal in the Nasdaq averages on big volume, after the big rally on Monday is another clue. The extreme weakness in the Transports is another, since they often lead the market.

Click for large image.

Finally, with the exception of Real Estate, the other 9 sectors in the S&P have had a rotational pop to a new high. Yesterday health care broke out. The breakouts in the other 9 sectors each stalled and have begun to retrace. The point is there are no more lagging sectors to rotate into which suggests the rotation game that has held up the S&P may be close to an end.

In Monday's WTR, I thought the market was at a critical juncture. If the pattern analysis calling for a sharp drop was going to be invalidated, it would happen in the next 48 hours. The trading action since Monday's close is supportive of the correction scenario - wave c to below 2400, and possibly below 2330.

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