Equal weight is the only index chart I trust this year

The equal-weight S&P sat at 219.02 this morning, +0.10% on the session. I have been running index internals for long enough to have one strong opinion: when cap weight and equal weight disagree, believe equal weight.

Why the headline index misleads

A cap-weighted index is a portfolio with concentration risk that nobody voted for. When a small number of very large names carry it, the index goes up and most of the market does not. Both facts are true at once, and only one of them makes the news.

That is not a criticism of cap weighting as a construction. It is a warning about using it as a description of market health, which is what almost everyone does.

The measures I run

• Percentage of members above their own 200-day line. Crude, slow, and hard to argue with.
• Advance-decline, cumulative. Not the daily print, which is noise. The line.
• New highs against new lows. Specifically the ratio during an advance, which is where the divergences show up first.
• Equal weight against cap weight, as a ratio. One chart that summarises the other three.

What they are saying

Narrow. Not dangerously so, and I want to be careful not to overstate it, but narrow. A rally that a small number of names are carrying is fragile in a specific and predictable way: it does not need bad news to unwind, it only needs those names to stop working.

Breadth does not tell you when. It tells you how much room there is for things to go wrong.

Why I am not doing anything

I do not form a view on breadth alone. Internals are a risk framework, not a trade. What they change is how much risk I think everything else deserves, and right now they argue for less than usual.

If the equal-weight line starts leading rather than lagging, that is a real signal and I will say so here. Until then this is a market to participate in cautiously rather than one to fight.