Conclusion, Investment Implications, Strategy

The equal-weght Invesco S&P 500 Equal Weight ETF (RSP) is amid favorable conditions to continue its recent trend of relative outperformance versus the standard cap-weighted S&P 500 (SPX).  RSP has already outperformed SPX by 2% since 8/4.

Analysis and Rationale

An equal-weight strategy, such as the Invesco S&P 500® Equal Weight ETF (RSP), can provide diversification benefits and reduce concentration risk by weighting each constituent company equally so that a small group of companies does not have an outsized impact on the index. These funds offer a tilt toward smaller, value companies, which can be attractive when the market is weak and in the midst of a major downtrend as is the case now,

The upper panel of Chart 1 below plots RSP daily since May along with its 200-day moving average, a widely-watched major trend proxy.  RSP has been in a  major downtrend since Apr 22nd according to the 200-day MA, and recently tested it as overhead resistance and failed there on Aug 16th.  The lower panel plots the corresponding daily relative performance between RSP and the more familiar cap-weighted S&P 500 (SPY) along with its 63-day moving average, which we use to determine the quarterly (our Strategic time frame) trend of relative performance between RSP and SPY.

Chart 1

The green highlights in the lower panel show that RSP resumed its larger 2022 Strategic trend of relative outperformance on Aug 30th.  This sets up a relatively low-risk opportunity to buy/overweight RSP within the currently defensive US stock market environment.

Table 1, which displays our current Sector & Industry Group Price/Relative Performance Based Opportunities, shows that a sustained rise above the 138.52 area would clear the way for a potential rise to retest the 153.10 Aug 16th high.

Table 1