Nothing highlights this changing situation more than the Vix, which spiked in mid-October to 26.25 but which has returned to a far more tranquil reading of 13.3. And note the speed with which things have settled down; in less than a month, the market has gone from about a week of "holy shit, everything is changing" to "we're back to where we were."
The 30 minute charts of the SPY and IEFs highlight this change.
Over the last month, the SPYs have slowed and consistently moved higher. The rally has consolidated gains on several occasions and, after doing so, resumed its ascent. However, the pace of the rise has clearly decreased, with prices forming a slow yet very price obvious arc.
At the same time, the bond market has not sold off to the same degree as the equities rally. Instead, the IEFs have consolidated their position between the 104.5 and 105.25 price levels since the end of October. If traders were seriously re-allocating their portfolios due to a return of the "equities are going to continue rallying" concept, we'd see bonds move lower. But that isn't happening.
In fact, the weekly TLTs (20+ section of the curve) are still obviously in an uptrend. All the EMA -- short and long -- are moving higher. The only bearish element on this chart is the decline in volume over the last few weeks, which could indicate the trend is about to reverse. But prices would need to move at least another 2% lower, which is a far larger bond market than equity market move.
That leads to the question: what's next? To answer that, let's look at the daily chart of the micro, mid and large cap ETFs:
The large caps' chart (OEF, top chart) is most closely tracking the SPYs. Prices have moved through previous resistance, although the pace of the rally has clearly decreased, indicating short-term declining momentum. In contrast, the mid-caps (middle chart) haven't made new highs, instead resting right at previously attained levels. And while the micro-caps (bottom chart) have broken through resistance levels, they clearly have little upward momentum.
This means that overall, we have a potential for another 5%-10% rally caused by events like a solid GDP read or strong employment report. But ultimately the market is still expensive, requiring positive fundamental news to move higher. It also makes this a stock-pickers market were a company that is growing faster than the economy as a whole and its sector and then its industry will fetch a premium price.