The Underlying Fuel Driving This Run – Part 2


Editor’s note: While I’m wrapping up the last day of my vacation, I want to give you a follow up from last week on the analysis of what factors are currently driving the market. This is the type of analysis I typically reserve for my Stealth Profits Trader subscribers, along with at least one new specific trade recommendation every single week. To learn about all of the benefits of Stealth Profits Trader, just click here.


Last week, we looked at one of my favorite ways to track market health by looking at the cumulative breadth of the New York Stock Exchange. The bottom line of that update: the market’s rapid rise from the Christmas Eve lows has been supported by a broad participation of stocks – lots of stocks have been helping to push the market higher.

That’s a contrast to many of the bull runs we’ve seen in recent years when a few of the large tech stocks were overcoming a mediocre performance by most of the rest of the market minions…

We can see that relative outperformance by looking at the gains made by the regular S&P 500 cash index, which is a market cap weighted index (meaning that the bigger companies in the index are weighted more heavily than the smaller ones) and comparing that to the movement of the S&P 500 equal-weighted index, where all stocks from #1 to #500 count the same. Here’s how the two compare in annual performance dating back to 2004:


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One of the few times that the red “normal” S&P 500 outperformed the equal-weighted index was in 2017 – a year when the mega-tech companies dominated the market. And that lead to the down year we had in 2018.

Let’s look at that for the run-up that happened last summer that was followed by the 20% bearish correction that happened in the winter:


It’s pretty easy to see that for most of the run-up through the spring and the summer, the red-colored normal (cap weighted) S&P 500 outperformed the blue equal-weighted calculation of the same index.

But since the beginning of this year, the tables have turned:

And this outperformance hasn’t been slight – the equal-weight index has gains 2% higher than its cap-weighted cousin. Having more stocks “pulling on the oars” to propel this ship forward is a bullish sign for the intermediate term. While the market is due for a modest pullback after running strong for two+ months, the intermediate-term outlook is still quite positive, absent any negative outside influences such as geopolitical turmoil.


D.R. Barton, Jr.

One Response to “The Underlying Fuel Driving This Run – Part 2”

  1. Lydia Seales-Fuller

    So I purchased my membership but I am still ignorant about how trading is done. I get lots of emails but each one just ask me to pay out more money. I would like to be actively learning how to invest and where to invest. I don’t have much today but I am hoping to change that soon.

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