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For a couple of months I've been talking about the strength of what I call "the other 2,400 stocks" as comprised by the Russell 2000 Small Cap index and the S&P MidCap 400.

These indexes proved themselves during this January rally by making new all-time highs even before the S&P 500 broke out above 1,470. To me, this was proof of breadth and depth in this cyclical bull's ability to make new highs for two reasons:

1) Economic optimism among analysts and portfolio managers

2) Market strength where new highs were not being led by mega caps

But another index I occasionally look at is the S&P 500 Equal Weight, which can strip out the distorting effects of an Apple or an Exxon and let all the players contribute. So instead of the concentration of price movement being typically reflected by the the S&P 100 (OEX), the biggest stocks in the US essentially, there is equal weight given to the bottom 400.

That's where I get the 2,800 in my title: RUT + MID + the bottom 400 of S&P = 2,800 stocks.

Anyway, let's let a price chart do the talking. Below is RSP, the tracking ETF for the S&P 500 Equal Weight index. It is shown on the right hand scale vs. the traditional SPX (yellow line and left hand scale).

The red line at $53 roughly represents the all-time highs for SPX-EW back in the summer of 2007. So that means that the EW has made a 7.5% surge above its all-time highs just this month.

I think this bodes well for the S&P to hit new highs above 1550 and the Dow above 14,000. This may not happen in the next few weeks since we've just had a terrific run already. But I bet it happens this quarter.

What areas of economic, sector or industry strength are you seeing that support this market view?

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