S&P 500: Small caps diverge

The S&P 500 ($INX) remains bullish, with Trend Index holding above zero for over a year indicating tremendous buying pressure.

S&P 500

Narrow breadth is our main concern, with the Russell 2000 small caps ETF (IWM) diverging from the S&P 500 ($INX).

S&P 500 & Russell 2000 Small Caps

Conclusion

The market is growing risk-averse as the Fed starts to taper. But financial markets are still awash with cash.

M2/GDP

Buying is likely to be concentrated in the heavyweights.

Apple (AAPL), Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (FB), and Microsoft (MSFT)

Small caps could possibly accelerate into a down-trend but reversal of large cap indices is unlikely with so much liquidity.