With the European bank stress tests out of the way, investors may shift their focus to what’s got the stock market perking up in the last couple of days.

After a horrid 2nd quarter, the S&P 500 is sure making up it's losses at a rapid rate. We've been rather bearish of late given the S&P was trading below its major moving averages that delineate bull & bear markets, with the prospect of these important resistance levels proving their merit with another leg lower. The only caveat we've had is that our models were near oversold levels. They never made it that far, but certainly they have now turned higher – with the S&P now gingerly breaking back above our resistance levels. This is material in our mind, and it has caused us – for now – to become tactically bullish. Our reasons are simple:

1. The bullish consolidation formation was confirmed with a breakout above trendline resistance;

2. The 40-day stochastic is rising from right at oversold levels; our proprietary models are based on the stochastic, so it serves a useful purpose here for illustration;

3. All the major moving averages – except the medium-term 75-day moving average – were violated from below; and,

4. Breath has been astoundingly good on this rally. Volume is a bit suspect; but we've found this argument not to hold water in the trading world any longer given the entire March-09 to April-10 rally was on low volume.

Therefore, our upside targets are 1120-to-1160, and we'll expect to see this develop by August-end…which pencil to paper would suggest a rally of another +11% in the space of a month. Now that's a tradable rally.

There are 11 equal weighted ETF, 10 of
which are sponsored by Rydex. One of those 10 is RSP, mentioned above,
and the other 9 are for the SPDR Sectors. Finally, there is the Nasdaq
100 Equal-Weighted Fund ETF (QQEW). The RSP chart below is an example of
all the charts on the new page.

The
Price Relative line is calculated by simply dividing the value of RSP
by the SPY. When RSP is stronger, the price relative line rises, and it
falls when SPY is stronger. Is this really such a big deal? Well, yes,
it is. From the March 2009 low the SPY advanced 87% to the May 2010 top.
RSP advanced 125% during the same period, which is 44% better
performance.

On
the negative side, it appears that the equal-weighted indexes are often
weaker during pullbacks and declines, but as a practical matter there
are no hard and fast rules, and we need to constantly be aware of the
relative performance of these two types of indexes.

Below
are two charts comparing RSP and SPY over the long term. Note the
peculiar behavior of RSP during the 1990s. This was when the stock
market bubble was inflating, and money was concentrated in large-cap
stocks. When the bear market started in 2000, we can see the sudden up
turn in relative strength, and RSP didn't hit its bull market top until a
year after SPY.

A
final comment on performance, from the 2002 bear market low SPY
advanced 107% to the 2007 top. RSP advanced 183% during the same period.
Why hasn't anyone noticed?

Bottom
Line: There are 11 ETFs that feature equal weighted indexes, and we
track and generate timing signals on all of them in our Decision Point
Alert Daily Report. On market advances these equal weighted indexes
normally outperform their cap-weighted counterparts, but shifts in
relative strength do happen, so we have set up a page of special charts
specifically to monitor relative strength on these indexes.