We joked about “No Sell November” earlier in the month, but it really did come true in markets. 🤣
All U.S. major indexes were up between 8% and 12%, with other asset classes participating in the rally. The Dow Jones Industrial Average closed at its highest level of the year. Heck, the traditional 60% equities and 40% bond portfolio had its second-best month in 30 years, according to Bespoke Investment Group.
Despite the broad optimism in prices, some are still concerned about the breadth of the market. They suggest that mega-cap technology stocks dubbed the “Magnificent Seven,” are the only thing pulling the market higher. However, some technical analysts shared a chart today that could suggest that it may be changing. 🏋️
Below is a ratio chart of the equally-weighted S&P 500 ETF ($RSP) divided by the cap-weighted S&P 500 ETF ($SPY). These types of charts are nothing more than a fraction plotted over time, so when the line rises, it means that $RSP is outperforming $SPY. And when the line falls, it’s underperforming. ⚖️
What the chart below shows is that after a long 2023 of underperformance by the equal-weighted S&P 500, it could be turning a corner. That’s because prices have stabilized at around the same levels they did during 2020 and are beginning to turn higher. 👇
Now, technical analysts argue that this shows an improvement in breadth, meaning that more stocks are beginning to participate in the rally. And that’s a good thing because other stocks are rising to offset weakness in the mega-cap tech names that have already risen so much (and may need to rest or correct). 👍
While this theory still needs time to prove itself, we wanted to highlight the chart and concept because they’ll be a big part of the conversation through the year’s end and into 2024. 👀