In spite of today's gap up and strong price performance, there are still situations developing that are calling the foundation of the rally into question.  This could either be a simple leadership change or a real sign of trouble.  I am leaning toward the latter, but distribution patterns such as these can take some time to complete.  The signals being given show a fundamental shift in investor behavior as tech and small cap stocks are being sold into the rallies.

In the first chart below which is a spread chart of the Nasdaq Composite vs. the Dow.  When the black line is moving higher, the Nasdaq is outperforming the Dow.  When it is falling, the Dow is outperforming the Nasdaq.  Notice how the spread topped on June 26 and has not broken out to a new high with the actual Nasdaq Composite, which broke out to a new recovery high on July 16.  This is showing distribution of market leaders and rotation into more defensive names. 



The second chart is a spread between the Russell 2000 (small cap stocks) and the Dow.  When the black line is rising, small caps are outperforming the Dow.  When the black line is falling, small caps are underperforming the Dow.  Notice how the spread has had a high in place since early June:



In order for bull markets (as some have labeled this rally) to thrive, traders and investors need an appetite for risk.  These charts show that such an appetite may be waning.  We will see how it plays out, but before you consider going 'all in' you need to recognize and understand the backdrop for risk trades in the market.