An Equal Chance on the Equal Weighted S&P 500

• Posted by Greg Harmon
• on August 22nd, 2013

There has been a lot of analysis and review of of the S&P 500. For those that did not know, it is a market capitalization weighted index, meaning the larger the company the bigger the percentage of the index. This index is is often used as a proxy for the market, but in some instances the construction can blind the true view of the underlying breadth. To get a more balanced picture you can look to the S&P equal weight index. The Guggenheim S&P Equal Weight ETF, $RSP, is one way to look at this. The chart below shows the same Shark Harmonic that has been showing up in the more common indexes, but also that it is at a critical point. Consolidating at the 38.2% retracement of the full pattern, it has reached the first target of the Harmonic pattern. If it wants to turn back up this is a good place for it to happen. But it also looks like a bear flag in a down trend. If this flag breaks lower the next target is the 61.8% retracement at 61.71 and below the 200 day SMA, with a Measured Move lower to there as well.

There are two takeaways here. First, the sell off is broad based. Second, if it continues there is still a good bit of downside in the patterns. But this also shows that the broader view is not quite as bad as the $SPY which has already moved 42% of the way down.

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