Will It Be Different This Time?

An incredibly strong and persistent rally has taken place over the last three months forming a massive V-bottom. However, if you look beyond the major indices stocks have been more of a "mixed bag". 

The DJIA, S&P 500 and NASDAQ have shown relentless strength moving back above their 200 day moving averages with authority. Up until Friday it looked as though they were headed straight back up to all-time-highs.

However, small cap stocks, financials and transportation stocks have lagged significantly over the last few weeks and are now trading well below their 200 day moving averages.

Friday's sell-off had financials and transports down well over 2% with small caps getting taken behind the woodshed for a 3.6% loss on the day. The media is blaming the inverted yield curve and the fear of a global economic slowdown. But what is price telling us?   

I've never liked uninterrupted rallies from a sharp V-bottom. The price action begins to feel unstable as stocks continue without retracing much if any of the gains made from the beginning of the year. They lack a foundation or base that can act as solid support in the future. 

This chart of the S&P 500 shows the price history of the most recent corrections. Will it be different this time?

What about Canadian stocks? They've also had a great run moving 17% higher since December's bottom but the momentum is starting to fade.

If we look back over the prior couple corrections there's a familiar divergence taking place that's definitely worth paying attention to. Will it be different this time?