STOCKS END WEEK LITTLE CHANGED -- BUT MARKET BREADTH IS LAGGING BEHIND

EQUAL WEIGHTED SPX LAGS BEHIND...Stocks were little changed on the shortened trading week and have maintained their intermediate uptrend.   The black bars in Chart 1 show the S&P 500 having reached the highest level in two months.   The SPX also remains above moving average lines and may be headed toward a test of its February high.   The black bars don't show, however, a recent narrowing in the price advance.   That can be seen more clearly by the solid red line which plots the S&P 500 Equal Weighted Index.   As its name implies,  that version of the S&P 500 gives less weight to larger stocks and offers a more realistic view of what the broader market is doing.   And as Chart 1 shows, the red line has started to lag behind the S&P 500 Large Cap Index over the last month.   That divergence suggests that the latest upturn in the SPX may be on weaker technical footing.   That narrower rally can also be seen in sector performance.

SECTOR LEADERSHIP NARROWS...Sector performance has also started to narrow.   Chart 2 plots sector performance over the last three months.   What jumps out are large gains in technology and  communication services and, to a lesser extent,  consumer discretionary stocks while the other eight sectors lost ground.  On the downside, financial stocks suffered the biggest losses.   The large gains in the XLK and XLC reflect rotation into those sectors, and explains Nasdaq leadership during those three months.   The big drop in bond yields during the first quarter also may have contributed to safe haven buying of large technology stocks.   But the fact that eight of the eleven S&P sectors lost ground is concerning,

A VISUAL LOOK AT SECTOR NARROWING...Chart 3 offers a more visual look at the narrowing of sector performance over the last three months.   For comparison purposes, the eleven sector bars are plotted above and below the S&P 500 which is shown as the flat zero line.   The SPX actually gained 7% during that period. So the chart shows relative performance.   The chart shows the same three sectors leading the SPX higher.   But it also shows the eight other sectors lagging behind.   That narrower leadership casts some doubt on the staying power of recent market gains.