Over the past week we saw a bit of divergence between our core market health indicators. Our measures of quality and risk got better, while our measures of trend and the economy weakened. None of them moved enough to change our core portfolio allocations.

Our core measure of risk is still diverging with the last several peaks in the market. Since the extremely overbought condition on this indicator in late 2013 it has mostly painted lower highs as the market moves higher. This indicates that investors are getting less confident with each rally. As I’ve noted before, it takes time to build a top so this indicator provides information and something to watch carefully, but nothing to act on…yet.

The most important thing to watch for a sign of a long term top continues to be breadth. So far we’re seeing small chinks in the armor, but nothing serious. The NYSE Advance / Decline Line (NYAD) is an example. It isn’t confirming the new highs in the S&P 500 Index (SPX). If this trend continues it’ll provide fair warning of a longer term top.

Something you should be aware of by now is the under performance of small cap stocks. The Russell 2000 Index (RUT) is stuck in a range while SPX hits new highs. RUT is painting a triangle that should give us some clues to the next short term direction. A break lower would be another sign of a thinning market and a longer term top ahead.

On Monday this week there was substantial weakness in momentum stocks. This is a sign that traders and investors are dancing close to the door. Any hint of rising short term interest rates causes selling in the most loved names. Another caution sign is that the selling caused drops of 5% and 10%. That means buyers are reluctant at current prices and are waiting for a discount before committing money. If momentum names can’t push higher then something else will have to emerge as a leader to keep SPX rising. Financial and selected Health care stocks look to be the leading candidate for the moment.

Keep an eye on breadth, RUT, momentum stocks, and financials over the next few weeks. They’ll be the indicators that will provide the most information about market health.