In the past two weeks, SPX has traded in an open/close range of just 1%. The net gain during this time has been exactly zero. Over the past 7 days, SPY has gapped overnight 6 times. And over the past 8 days (including Sunday), ES has alternated direction (up, down) everyday with only one exception. In short, this is a market either changing direction or simply looking for direction.
Since mid February, there has been no net performance differential between SPX and TLT (chart). When you include the higher yield of bonds, equities have underperformed. Moreover, upside has been half of the downside range during this period. This means there has been no reward for risk; in fact, risk (upside)/reward (downside) has been much less than 1. It also implies a divergence has taken place, with equities moving up in the past month as bond yields have sunk (read further here).
None of the 4 US indices nor any of the 9 SPX sectors have either broken their trend line nor made a meaningful lower low over the past 18 weeks (chart). That is a strong trend and, as we have said, this is the most important indicator of the market.
Beneath the surface, however, defensives stocks have, as a group, been leading in the past two months (chart). Cyclicals have been a mixed bag, with some keeping pace with SPX and several underperforming. Andrew Thrasher has shown that high beta has been underperforming low beta, a negative development in the past (chart). Leaders on the way up, Amazon and Goldman, have each lost about 10% within the past two months. Semiconductors (which lead the tech cycle) have gone sideways during this time and have recently broken their trend line (chart). All of these are below their 50-dma.
The implication is that US markets may be beginning the sideways pattern that has been present in the Euro 350, All World Ex-US and Emerging Markets for most of 2013 and from which the US indices have so far been immune. The see-saw action with no net gain and frequent overnight gaps of the past two weeks are typical hallmarks. To watch going forward is the sideways pattern (chart; explained here).
As it has been since the first week in March, SPX is within a prior area of strong resistance (1555-1575) just as its upward momentum typically begins to fade, (here and here). There is another 1% to the top of the range and an overshot could easily take it 2% higher. Weigh this potential reward against the fact that, since 1980, the probability of a 5% correction by the first week in April is 90% (read here). 1Q13 EPS season begins shortly and guidance has been downward (here and here). To take the market significantly higher, fund managers will need to commit more capital, yet their exposure to equities increased 6 percentage points in the last month and is now the second highest of any period since 2001 (here).
