As I mentioned last Friday the S&P 500 Index should see some sideways action near the 2000 level. We’re now three days into sideways motion on relatively low volume. It’s the last week of the summer so we could continue to drift for the rest of the week. Once everyone gets back to work next week we should see some movement as people evaluate their portfolio performance and start to position themselves for the end of the year. Our indicators only have a few kinks that suggest we may be putting in a longer term top. The Russell 2000 (RUT) is still lagging the other indexes, but has been playing catch up this week.

Junk bonds (JNK) have had a huge run, but haven’t recovered from the July damage. They’re telling us that investors are still positioning themselves away from risk.

The ratio between the S&P 500 Equal Weight Index (SPXEW) and the S&P 500 (SPX) is still below its 20 week moving average. This is a sign of rotation to safety.

Overall things look good but a few indicators suggest a longer term top is in the making. Tops are a process so we have to wait for a lot more evidence before getting concerned.