What’s Up (Down) With Stocks?

The topping action exhibited by the S&P 500 last year was accompanied by shrinking market breadth. Basically, it was concentration risk writ large. As in large caps. They just got larger and larger. We can see that when we put up the Invesco S&P 500 Equal Weight ETF (NYSE Arca: RSP) price in ratio to that of the SPDR S&P 500 ETF (NYSE Arca: SPY). Both ETFs track the very same stocks but RSP’s equal weighting scheme allows the smaller issues greater expression. The red line in the chart below traces the breadth ratio; the black line is SPY’s price. Notice how the breadth ratio’s been trading under its one-year moving average (the blue dots) since 2017?

Well, no longer. For the past three trading days, the breadth ratio’s been “above average,” so to speak. That’s a sign that the stock rebound has some real legs. To date, RSP’s gained 7.9 percent versus SPY’s pickup of 5.4 percent.

The question before us now is whether those legs can hold up through the rest of the year.

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