Broader market could play Catch-up to Technology as IWM breaks out

US Equity indices look to have shaken off the minor mid-week pullback attempt and are now beginning yet another leg higher, which should prove more broad-based in participation than what’s been seen in recent months.  Breakouts in the Equal-weighted S&P 500 along with Russell 2000 on Friday are both conducive towards thinking that some mean reversion is taking hold in some of the formerly underperforming sectors.   Meanwhile, some stalling out in Tech relative to the broader market is possible in the short run.  However, I don’t expect this proves too long lasting before Technology starts to turn up again.   Bottom line, Small-caps now look to be in the zone where they can begin to show some relative strength, and I expect that Equal-weighted S&P 500’s rally will continue.  However, it’s difficult to say just yet that meaningful outperformance vs. Technology will occur.

As this chart shows below, the Equal-weighted S&P 500 ETF ($RSP-Invesco) has finally achieved its long-awaited breakout, which also happened in the Russell 2000 this week. 

Thus, despite the underwhelming earnings out of the big Banks on Friday, the market was able to show a big breakout, thanks to good performance out of Consumer Discretionary, REITS, and to a lesser extent, Industrials and Materials.  Equal-weighted Financials ($RSPF) still managed to rise +0.43% and this looks attractive given that Regional Banks ($KRE) also rose to the highest levels since January.  Thus, the laggard Regional Banks have now also broken out, and this should spur on outperformance from the Financials, even if the large-cap Banks lag temporarily.

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