Equal-Weight S&P 500 Nears Breakout as Rotation Takes Hold
Trading following Nvidia’s report was bullish as cash flowed into secondary names.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
The market mood on Friday morning is positive, with further interest-rate easing lending support. The most important development is that the Invesco S&P 500 Equal Weight ETF (RSP) is on the verge of a technical breakout, closing Thursday at $203.83. It has been probing all-time highs for a while and has a solid base of support for a run at a breakout over the 52-week high at $205.53.
The strength in the equal-weighted indexes illustrates that rotational action is gaining momentum, a dynamic that creates more trading opportunities. A clean breakout would confirm what the under-the-surface action is already telling us: participation is broadening beyond the handful of mega-cap names that have been carrying the indices for so long.
A Bullish Setup
Thursday’s session delivered the kind of action we want to see. Money flowed out of Nvidia (NVDA) after a strong earnings report and moved into small-caps and other speculative corners of the market. There was strong interest in names outside the Magnificent Seven, and that is a bullish development.
When big-cap leaders absorb all the buying, smaller names get treated as innocent victims of asset-allocation flows. When that pressure lifts and money rotates, the setups in those names can resolve in a hurry. Thursday was the clearest signal yet that a shift is occurring.
Oil Up, Iran Drags On
Oil is back up Friday morning, but the market is not showing much concern that the Iran situation is dragging out. The war issue is no longer driving the action the way it was a few weeks ago. Traders have made their peace with the uncertainty.
If we see progress on Iran, it has the potential to act as a positive catalyst. If nothing happens immediately, the market is signaling it can live with that too. The setup is asymmetric and favors the bulls.
The Inflation and AI Dichotomy
There are two big issues doing battle right now. On one side, we have increased inflationary pressures caused by the war and oil and on the other side, we have booming developments in artificial intelligence, alternative energy, and emerging technologies. That gap is showing up in the price action and is triggering stronger rotational action.
Inflation worries weigh on consumer sentiment and rate-sensitive stocks, while AI, quantum computing, and the SpaceX initial public offering are driving the speculative side of the market and helping overall sentiment. There is no mystery where the best opportunities lie, and that needs to be the focus.
Game Plan
My approach to Friday is a more aggressive focus on potential breakout plays in smaller stocks if RSP confirms its move through resistance. If you are so inclined, this is the moment to ramp up exposure to some watch list candidates on a confirmed RSP breakout.
I am not going to chase, but I will be looking for favorable entry points in anticipation of a breakout. The game plan time frame here is longer than a few days, and the rotational leadership could carry into next week and beyond.
It is a solid technical setup for many stocks, but the key is picking the right stocks at the right time.
At the time of publication, Rev Shark had no positions in any securities mentioned.
