The Market I Trade Suggest Caution Here

One of these indexes is not like the other.

$INDU

$SPX

$RUT

Since the beginning of July there has been a significant underperformance by the small caps in comparison to their more mature siblings.  Burrowing a little deeper, the divergence between the $RUT is move evident as a ratio to the $SPX.  The following chart clearly indicates that this has been a continuing issue since February and that the brief period from May through June was more of a mirage than an actual change in small cap leadership.

$RUT:$SPX

More distressing to me is that the more heavily discussed and psychological bellwether indexes continue to show great strength on the surface and make headlines while underneath the number of free range stocks unburdened by placement in an index further weaken on numerous time frames.  What the numbers are telling me is that there is erosion spreading from weekly to the monthly, and that from a peak of 1291 in 8 trading days an even higher time frame indicator is about to flip negative.

From my perspective the current state of the market is better to be observed from afar than as a participant.  The market that I trade is not healthy for breakout trades on a 5 to 10 day time horizon especially given that the ratio of stocks moving on this time frame continues to weaken as more break down than out.  I continue to affirm the belief that we all trade our own markets and that my analysis works with my personal trading psychology and may not be applicable on a different time horizon.  It's merely my opinion here that this is a period to be cautious for swing traders.