We finally got a good breakout above the 2400 level on the S&P 500 Index (SPX), but my core market health indicators aren’t believing it. Most of them fell this week, which doesn’t bode well for a sustained rally. That’s not to say the market can’t chop upwards, but without underlying technical strength don’t expect huge gains.

One thing I’ve been highlighting over the past few months is the ratio between SPX and equal weighted SPX. This ratio is telling us that mega cap stocks are where the money continues to flow. When this happens, the best the market can do is marginal new highs that are usually followed by chop. That’s what I expect to see until the ratio can get back above its 20 week moving average.

(Click on image to enlarge)

Conclusion

We’ve got a break to new highs, but underlying technical indicators aren’t confirming the rally. Expect hard fought gains followed by choppy market action.