Speculative leadership slips a gear

Key points:

• A composite of micro cap, small cap, and IPO relative strength vs the S&P 500 fell from 100 to 56 in under a month
• A drop from 100 to below 60 has triggered 28 times since 2001, but only 11 times within 21 trading days
• After the fast version, the S&P 500 was higher one month later 80% of the time, but only a third of the time six months later
• The core basket (SPY+QQQ) showed the broadest weakness at the 3-to-6-month mark; defensive held a positive median throughout

A synchronized peak

The S&P 500 is trading near its highs, but beneath the surface the most speculative pockets of the market just handed back an unusual amount of relative leadership in a hurry.

It's rare for micro caps, small caps, and IPOs to all peak against the S&P at the same time. We average three SentimenTrader relative-ratio ranks into a single composite. When all three hit 100, the composite does too. That's where it was a few weeks ago. Now it sits at 56, below 60, and it got there in under a month.

When that synchronized leadership breaks below 60, it has happened 28 times since 2001. When it breaks in under a month, the count drops to 11. That's the version worth paying attention to.

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