Market Rally Could Be Expanding Beyond AI - but Here's the Catch

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Market Rally Could Be Expanding Beyond AI - but Here's the Catch
Microsoft CorporationSPDR® S&P 500NVIDIA Corporation
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Stocks Analysis by Gary Tanashian covering: S&P 500, Microsoft Corporation, SPDR® S&P 500, NVIDIA Corporation. Read Gary Tanashian's latest article on Investing.com

A reader sent me an analysis calling for a “Monster reversion trade for the ages” based on the extreme under-performance of the Equal Weight SPX prior to the last two bear cycles. I have added the nominal view of RSP for context.

Market breadth readings indicate an undeniable truth: most stocks in the S&P 500 are vastly underperforming a handful of mega-cap behemoths. Well of course, it “can” keep going. This market with its crossed signals and failed has been a challenge. Like riding a bucking bronco or worse, a nasty and pissed-off bull. But the fact is that when coloring the above analysis with actual historical facts, the RSP/SPY ratio negatively diverged during phases where the nominal SPY, and RSP for that matter, were rising. Just like today.

. That seems to me to be an important qualifier. The big reversion trade in 2009 came after a pervasive market crash. The big reversion trade in 2020 also came after a market crash, of sorts.

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