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Here’s something most traders are completely missing right now…
While everyone’s watching the S&P 500 (SPY) make lower lows and panicking about market breadth falling apart, the actual data is telling a completely different story. And if you know how to read it, this divergence is setting up one of the most compelling bounce scenarios I’ve seen in weeks.
The headline price action is hiding a massive improvement in market internals, and that disconnect is where the real opportunity sits.
The Numbers Don’t Lie
On March 20, we had 740 stocks breaking down on a non market cap-weighted basis. That’s significant selling pressure across the broad market. But despite SPY making fresh lower lows since then, we’re now down to just 585 stocks breaking down — a reduction of 155 stocks.
Price is moving lower, but breadth is actually improving.
That’s a textbook divergence, and it becomes even clearer when you look at the equal-weight S&P 500 (RSP) and small caps in the Russell 2000 (IWM).
RSP simply is not as weak as SPY, and IWM is holding up even better because it doesn’t carry the same heavy exposure to the Magnificent Seven. When the cap-weighted index breaks down harder than the average stock, it tells you the selling pressure is concentrated, not broad.
And that concentration is coming from just four mega-cap names — most notably the sharp slide in Meta (META) on Friday. Without that hit from a handful of the market’s biggest components, SPY would be trading meaningfully higher right now.
The breakdown everyone is fixated on isn’t the broad market falling apart — it’s a concentrated drag from a few giants masking healthier underlying behavior.
What Equal Weight and Small Caps Are Telling Us
When you compare SPY against RSP and IWM, the story becomes obvious. The weakness in the cap-weighted index is not being confirmed by the rest of the market.
RSP is holding up better, and IWM is showing even more resilience. These areas aren’t being distorted by mega-cap volatility, which gives a much cleaner read on the true trend.
The war initially sparked the sell-off, but the extended downside has been driven far more by Mag7 weakness than broad-based deterioration. As internals firm up while headline prices continue to slip, it signals that the market is beginning to assimilate the geopolitical shock — and this isn’t the first time we’ve seen this behavior.
Think back to the early days of the Trump administration, when tariff announcements during market hours routinely jolted prices. Markets reacted sharply at first, then steadily learned to discount the noise once they understood the scope and likely outcomes.
We’re seeing a similar process now. Price is still reacting to headlines, but the internals tell you the market is already adjusting beneath the surface.
The bottom line: Don’t let the headline SPY chart fool you. The divergence between price and breadth is setting up a bounce scenario that most traders aren’t seeing because they’re only watching the surface-level action. The real edge comes from understanding what’s happening underneath.
I hope that helps!
Roger Scott
Roger Scott Trading
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The majority of trades expressed are based on historical signals from Alpha Zone Pro with the benefit of 20/20 hindsight unless otherwise stated. While Roger has used Alpha Zone Pro with great success in his premium Telegram channel, we can’t guarantee future results, and you may lose money. What you will see today are some of the best examples. There have been bigger winners, smaller winners, and losers. Since Alpha Zone Pro is a tool for traders and not a trading service, profits and performance will vary among users.
