Rotation inside an index is not money leaving it

When leadership rotates from one group of large names to another, an index can look shaky for a few weeks without anyone actually selling the market. Money is moving between rooms, not leaving the house.

Rotation versus distribution

Distribution looks like broad selling: most members falling, volume on down days, defensive sectors outperforming. Rotation looks different. Some leaders fall while others rise to replace them, and the total barely changes.

Confusing the two leads to selling a healthy market during what is really a change of guard.

What I'm watching

• Dispersion between the index's largest members
• Volume on down days against up days
• Whether the new leaders are making new highs as the old ones pull back

Where I stand

Long, on rotation keeping the advance intact. The leaders are changing; the appetite for the index is not.

What would change my mind

The new leaders failing to make new highs while the old ones keep falling. That is rotation turning into distribution, and it would change the picture quickly.