A rising index only tells part of the story. To know whether a market move is
solid or fragile, you need to look under the hood: which sectors are
actually participating, and how many stocks are carrying the move.
The sector heatmap: who's leading the dance
Relative sector performance reveals the market's appetite for risk:
Technology and consumer discretionary leading — a
risk-on signal: investors favor growth and accept more risk.
Utilities, healthcare and consumer staples leading — managers are
positioning defensively, a sign that confidence in the move continuing is limited.
Market breadth: how many stocks are participating
The RSP/SPY ratio (equal-weight index versus cap-weighted index) is the
key tool for measuring breadth:
When the cap-weighted S&P 500 (SPY) rises faster than its equal-weight version (RSP), it
means the rally is carried by a small number of large-cap stocks, not
by the market as a whole. This is the typical context where bullish index breakouts are
most deceptive: the index advances, but most individual stocks don't
follow.
30-day correlations: detecting regime shifts
Tracking rolling correlations between assets (for example gold-dollar or Nasdaq-rates)
helps spot when the usual relationships between markets break down — often a sign that a
macroeconomic regime shift is underway.
Seasonality: the calendar's statistical bias
Over a 15-year depth, certain months show recurring statistical biases. This is not a
guarantee, but additional context to factor in among others.
Track sector rotation live
Yuka Finance shows the sector heatmap, market breadth and seasonality, updated
continuously, for free.