Guest post by Chris Puplava
Back in April there were several market pundits making the claim that the large cap S&P 500 (SPX) (SPY)Â and Dow (INDU) (DIA) indices would soon play catch up with the beaten up small cap Russell 2000 index (RUT) (IWM) and the technology-heavy NASDAQ composite (COMP) (IWM). However, a closer look under the market’s hood suggested a consolidation rather than a top, as argued a couple months ago. As a quick recap: What pushed me into the consolidation camp was a look at 52-week high/low data, coupled with a large surge in momentum and capitulation-like selling in the NASDAQ. That, coupled with improving economic momentum suggested the markets would regain their footing as we have now seen with new highs in major indices and sectors.
A major drag on the indexes since the beginning of the year had been a notable underperformance by the largest sectors of the market. For example, in April I took a snapshot of the S&P 1500 (which represents ~ 90% of the entire US market capitalization) and you can see when looking at the table below at the time that the consumer discretionary (XLY) and technology (XLK) sectors had the worst breadth (fewest members above moving averages) with the health care (XLV) and financial (XLF) sectors not too far behind. The consumer discretionary, technology, and health care sectors make up 45% of the S&P 1500 and throw in the weak financial sector with a 17% weight and you are talking 62% of the market that had horrible breadth.
Trend Summary Chart as of 04/25/2014Â 
Source for all charts: Bloomberg
A look at the current snapshot of trend strength within the S&P 1500 paints a completely different picture as the biggest sectors now show the strongest short (20 day) and intermediate-term (50 day) breadth while the smallest sectors like the utility (XLU) and telecommunication (XTL) sectors are showing the weakest breadth. Luckily those two sectors combined only make up 5% of the market.
