Well we got a new short-term high on Friday, with the S&P 500 getting up to 1390, pressing up against resistance, which we’ll talk about later. First up I want to show this chart of the ratio between high beta and low beta ETFs. There isn’t a lot of data for these two, so we can’t go too far back to see past instances, but it seems when the ratio gets down past 0.70, we have seen low beta stocks begin to underperform high beta, which typically takes the major indices higher. The past few lows we have experienced in the last couple of weeks, as well as the low back in October 2011, have all been reached once this ratio between high and low beta hit the 0.66 level.
What makes me continue to be cautious here is the fact that small caps still aren’t participating in creation of new short-term highs we are seeing large caps make. We had last looked at small caps back on July 24th back when I noticed the Nasdaq high percent index was extremely low. The divergence of small caps was not able to hold down the major indices back then, and it’s hard to say if it could now.
One other point I want to bring up is the rising trendline on the S&P 500, which you can see in the chart below along with the Russell 2000. This could be one of the last few blockades the bulls have before making a run at 1420.
