Equalweight S&P 500 Hits Golden Cross, Signaling Potential Uptrend

In the financial world, a segment of the S&P 500 index is experiencing a significant comeback. The 'Magnificent Seven', a term used to refer to the top-performing companies in the S&P 500, had previously overshadowed the majority of the index's constituents. However, as of late, the other 493 companies are now witnessing a resurgence in performance.

Understanding the Golden Cross

A pivotal moment occurred for the Equal Weight S&P 500—an Exchange-Traded Fund (ETF) known as RSP that assigns an equal weight to each stock within the S&P 500. This fund achieved a technical phenomenon dubbed the 'golden cross.' This event is identified when a shorter-term 50-day moving average (50-DMA) rises above a longer-term 200-day moving average (200-DMA). To traders and analysts, this crossover often suggests a potential shift in long-term trend towards the positive.

Recognized as a bullish signal, the golden cross may indicate that further gains could follow. This signal is tied to the performance of the broader equal-weighted index, suggesting that previously underperforming parts of the market might now catch up with their larger counterparts.

Performance Comparison and Market Indicators

According to FactSet data, since the beginning of November, the ETF has rallied by approximately 16%. In contrast, the traditional S&P 500, which weights companies by market capitalization, realized a gain of 12.7% over the same period. Despite this, the S&P 500 has still outstripped its equal-weighted version this year, with an increase of 24.4% versus the 11.9% climb for the RSP.

Moreover, there have been movements in other market securities. In an opposite event to the golden cross, U.S.-traded crude-oil futures entered a 'death cross,' suggesting a potential downturn.

Additionally, small-cap stocks in both the U.S. and Europe are on the verge of achieving golden crosses. Across the Atlantic, the euro and the Stoxx Europe 50 are approaching similar technical milestones, indicating possible strength in European markets.

Bond yields, which have an inverse relationship to prices, are also approaching death crosses, hinting at price increases for European bonds.

Overall, technical strategists are keenly observing these developments, as bonds and equities alike show signs of undergoing noteworthy trend reversals. The market is waiting to see if the promise of the golden cross will bring about a sustained period of gains.

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