Equal weighted indexes relative to their market cap (or float) weighted indexes are a common method of measuring the strength of the average stock relative to the index components that command a higher weighting. In other words, trends in these ratios can give an indication of where risk lies; if the ratio has been trending higher, the average stock has either gained more or lost less (depending on the trend of the index), and vice versa. For the S&P 500 and S&P 600, these relationships have either begun to materially weaken or have been weakening, signaling higher risk in the average stock relative to the index heavyweights. For the NASDAQ 100 and the S&P 400, these relationships remain in uptrends confirmed by bullish momentum regimes, signifying higher risk in the index heavyweights relative to the average stock.
S&P 500
The S&P 500 index has broken short-term support at the 3,850 level in yesterday’s trading session, continuing its descent below the declining 50-day moving average. In a similar dynamic, the Equal Weight S&P 500/S&P 500 ratio has moved up to test the highlighted resistance zone from below the now-flattening 50-day moving average of the ratio. Note that RSI in the ratio broke down into a bearish regime several trading sessions earlier, indicating a potential shift in strength from the average stock into the index heavyweights.
S&P 400
The S&P 400 index has followed a similar pattern as its larger sibling in yesterday’s trading session in breaking down below support at the 2,330 level below a declining 50-day moving average. The major difference in the space is that the Equal Weight S&P 400/S&P 400 ratio has maintained its uptrend, trading above both the ratio’s rising 50-day moving average and the rising trend line of relative support. RSI of the ratio remains in a bearish regime trading off of overbought conditions, confirming the strength of the average stock relative to the index heavyweights.
S&P 600
In a bearish turn of events, the S&P 600 has reversed course and broken below the January 2021 upside breakout zone at 1,150 in yesterday’s trading session, below a declining 50-day moving average. The Equal Weight S&P 600/S&P 600 ratio is in process of testing short-term relative support at the highlighted zone below the ratio’s declining 50-day moving average, after a feeble upside breakout attempt above the indicator late last week. RSI of the ratio is testing a key zone at the highlighted level; should momentum break down at this level, it could indicate a material shift in strength from the average stock into the index heavyweights.
NASDAQ 100
The tech-heavy NASDAQ 100 has broken short-term support at the 11,700 level in yesterday’s trading session, continuing its bearish price action below the declining 50-day moving average. The Equal Weight NASDAQ 100/NASDAQ 100 ratio is knocking on the ceiling of long-term relative resistance at the August highs of last year above the ratio’s rising 50-day moving average. RSI of the ratio confirms the bullish price action in the average index component relative to the index heavyweights, remaining in a bullish regime.
Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.