Last Friday the S&P 500 Equal Weighted Index beat NDX by over 1% while gaining >2% for the day. We observe what similar breadth thrusts have meant historically.

Last Friday, breadth came back into the market after a rough few weeks. The S&P Equal Weight Index (SPXEWI) gained nearly 2% and beat the Nasdaq-100 Index (NDX) by more than 1%. Excluding clusters within 90 days of each other, this is 17th such occurrence with data going back to 1992 where the SXPEWI gained more than 1.5% and beat the NDX by at least 1%. There are a handful of “harbingers of doom” like October 1999, October 2000, January and July 2008, June and December 2021. October 1999 has strong forward returns one-year out, but the tech bubble peaked in March 2000. This is like the June 2021 occurrence where the market was still strong for another six months. Outside of these instances, the forward returns are strong, particularly on shorter time frames. While some the occurrences preceded market weakness, there are few bottoms or near bottoms like March 2003 and March 2020 mixed in as well. The average forward returns for both SPXEWI and NDX are strong. Looking at returns post-tech bubble, NDX’s average returns drop quite a bit, but are still healthy. SPXEWI’s returns are about same whether looking at data including or excluding pre-2000 returns.

While these single-day occurrences are interesting, they simply help add context to the overall picture. Another important piece of the puzzle is the absolute technical picture. For SPXEWI, it still trades on a sell signal with a few levels of resistance nearby. Long-term, SPXEWI trades in a positive trend which is key for the health of the technical picture. Back to resistance levels, 7700 and 7750 will be important to watch moving forward as a break above these levels would mark a new all-time high which is definitely a sign of strength. From a relative perspective, the cap-weighted indices are still the premier are of strength in the domestic equity market, but seeing more participation from the “average stock” would be a healthy development for the market.