For a couple of months I've been talking about the strength of
what I call "the other 2,400 stocks" as comprised by the Russell
2000 Small Cap index and the S&P MidCap 400.
These indexes proved themselves during this January rally by
making new all-time highs even before the S&P 500 broke out
above 1,470. To me, this was proof of breadth and depth in this
cyclical bull's ability to make new highs for two reasons:
1) Economic optimism among analysts and portfolio managers
2) Market strength where new highs were not being led by
But another index I occasionally look at is the S&P 500
Equal Weight, which can strip out the distorting effects of an
Apple or an Exxon and let all the players contribute. So instead
of the concentration of price movement being typically reflected
by the the S&P 100 (OEX), the biggest stocks in the US
essentially, there is equal weight given to the bottom 400.
That's where I get the 2,800 in my title: RUT + MID + the
bottom 400 of S&P = 2,800 stocks.
Anyway, let's let a price chart do the talking. Below is RSP,
the tracking ETF for the S&P 500 Equal Weight index. It is
shown on the right hand scale vs. the traditional SPX (yellow
line and left hand scale).
The red line at $53 roughly represents the all-time highs for
SPX-EW back in the summer of 2007. So that means that the EW has
made a 7.5% surge above its all-time highs just this month.
I think this bodes well for the S&P to hit new highs above
1550 and the Dow above 14,000. This may not happen in the next
few weeks since we've just had a terrific run already. But I bet
it happens this quarter.
What areas of economic, sector or industry strength are you
seeing that support this market view?
SPDR-DJ IND AVG (DIA): ETF Research Reports
ISHARES TR-2000 (IWM): ETF Research Reports
SPDR-SP MC 400 (MDY): ETF Research Reports
GUGG-SP5 EQ ETF (RSP): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
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