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The S&P 500 HATES Rotation
The Nutrition Facts
The S&P 500 HATES Rotation
The S&P 500 is not what most people think.
Ask a random person on the street:
“What’s the S&P 500?”
Most common answer I get:
“It’s a stock index made up of America’s 500 largest companies.”
Fair. I don’t expect everyone to have the nuances down.
But then ask this:
“How does it weigh those companies?”
Deer in headlights. Almost every time.
It’s wild. This is the index people are told to “just buy and hold, it always goes up,” yet they've never looked under the hood.
So here’s the truth:
The S&P 500 is not diversified.
It’s not passive.
It’s an active momentum strategy in disguise.
It keeps buying the winners and selling the losers.
Every quarter, like clockwork.
But here’s the catch:
What happens when the winners start losing…and the losers start winning?
That’s called rotation—and that’s exactly what we’re seeing right now.
PS - The S&P 500 HATES it.
The Nutrition Facts
One of the most important tools in a technician’s toolkit is market internals.
I think of market internals as what’s actually inside the indexes, not just what they appear to be on the surface.
Most people treat “The Market” like the front of a cereal box: shiny branding, buzzwords, and whatever looks good that week.
But the real story?
That’s on the back, the Nutrition Facts.
The stuff no one reads, but where the truth lives.
The Nutrition Facts of the S&P 500?

Tech is the main ingredient. Throw in a healthy dose of healthcare, financials, discretionary, and industrials. Then just a sprinkle of energy, materials, utilities, and staples for texture.
If you’re baking a bull market, Tech isn’t just an ingredient, it’s the flour.
Without it, the structure of the market struggles.
Don’t take my word for it. Take a look - 9 of the 11 S&P sectors are up this year.

Sounds like the market should be cruising, right?
It’s not. The S&P 500 is down.
Money moved out of where it matters most.
I used to think, “Rotation is the lifeblood of a bull market.”
Maybe when the S&P 500 is not this concentrated.
In this environment, rotation isn’t it’s lifeblood, it’s the Achilles’ heel.
Breadth can improve, but if the biggest players sit out, the index will continue to grind instead of climb.
Until we turn the grind back into a climb, I’m fine sitting on the sidelines.
Weekly Show on Stocktwits
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Throw it on 1.5x speed and let it rip.
Thompson’s Two Cents
You guys are the best—truly.
Subscribing and sharing my work with those you know to also help their investment process continues to help me grow.
Behind the scenes, big things are coming.
First up: my latest research column, Thompson’s Two Cents.
I’ll be dropping my two cents every Tuesday and Thursday.
Cheers,
Larry Thompson, CMT CPA