The stock market has overcome a variety of headwinds in its march higher this year, and both mid- and small-caps crossed into record-high territory on Monday.
But underneath the surface, this market is flashing some warning signs. If there’s a meaningful rally in the next one to two weeks, these signals can be dismissed; otherwise investors should consider taking steps to protect their portfolios.
The potential cause for concern is the series of slightly lower highs being printed by a number of key market segments. Even as the charts of headline indices such as the S&P 500 continue to show an uptrend, the same can’t be said for specific sectors like Financials, Consumer Staples and Utilities, which in combination make up nearly 30% of the market.
Alone, any of these charts could be dismissed as an anomaly. But together, they paint a picture of a market that could be gradually losing momentum:
The soft performance of these groups has had an impact on market segments that tend to have a more defensive tilt, resulting in a similar pattern of lower highs for yield-focused dividend ETFs such as iShares Select Dividend ETF (DVY) and low-volatility funds such as PowerShares S&P 500 Low Volatility Portfolio (SPLV).