The bear market rally has continued to move prices higher, and the strength is greatest in the smaller-cap stocks. For example, the S&P 500 has rallied 30% from the March lows, but the Rydex S&P Equal Weight ETF (RSP) has advanced 45%. Looking through the list of the Spider Sectors and their equal weighted counterparts, we can see that the equal weighted indexes are doing much better than the traditional cap-weighted indexes. Nevertheless, the S&P 500 has managed to move above the medium-term resistance presented by the declining tops line of the recent trading channel.
As we have noted in recent articles, prices have been advancing in the face of overbought short-term indicators. See the CVI below. It has stayed mostly on the overbought side of the zero line, and prices have moved higher as th CVI has diverged negatively. This is bullish and is evidence that the rally is probably not over; however, medium-term indicators are now becoming overbought. Note that the S&P 500 PMO (above) is above 2.5, and the VTO below are very overbought.