If the Equal Weight S&P Is So Strong, Why Isn’t Breadth Rallying?
Let’s dive in and look at the equal-weight S&P and try to understand why breadth isn’t stronger.
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I admit I do not understand the RSP or equal-weight S&P (RSP). It made a new high earlier this week, by a decent margin, and yet the breadth of the market made a lower high. If it is so equally weighted, shouldn’t it look just like the breadth of the market, which is equally weighted?
I am certain there are a host of reasons that RSP acts the way it does that I will never understand, but if RSP has made a new high and breadth has not, isn’t that a negative divergence?
If RSP has made a new high and the McClellan Summation Index—a smoothed out version of breadth—is far from a new high and heading down, isn’t that a negative divergence?
If RSP has made a new high and the number of stocks making new highs on the NYSE is well below the prior peak, isn’t that a negative divergence? I mean, there are 500 (or, according to the website, 505 stocks in the RSP; shouldn’t there be more than 30 stocks making new highs?
And for all that talk of broadening out, have you seen the RSP relative to the S&P (SPY) since this rally started? Straight down. There’s the Either/Or Market. But even so, if there is so much broadening out, why is this ratio still under the February (and March) high?
I am going to say it again, broadening out—to me—is what the November to February rally looked like: higher highs in the ratio, higher highs in the Summation Index, increasing stocks making new highs, etc. That is simply not what this market has.
Maybe this pullback will be just like the mid-January pullback in the ratio (arrow), but thus far, that’s not what I see. For all the hoopla about financials and the banks, the ratio of the Bank Index to the S&P has basically topped out at the same place all year (.0255). Last week’s rally has seen a big pullback in the ratio.
Let’s face it, investors like growth stocks; they like technology stocks. When given the chance to buy them, that is where they gravitate. Every single time.
Now that my rant about the RSP and the others is over, let me report that the VIX is back to the level it was (15) in early June and early July. And we find the Daily Sentiment Index (DSI) at 17 for the VIX. So, as the market reaches a short-term overbought condition next week, it is possible the DSI for the VIX falls under 15, which would signal to me it’s time for some giveback. And yes, I’m still eyeing the ‘others’ for that August give back.
