How The Russell 1000 Shifted Our Views On A Sideways Market

2026-03-07 22:53:16

Taking a step back and observing the Nasdaq composite, S&P 500 or Russell 1000, it’s pretty easy to see the indexes have gone nowhere since October. But there is danger in a sideways market. In downtrends, it’s easier to stay in cash when not much is working.

Sideways markets have enough short rallies and stocks working to entice you in, but the trend doesn’t last for long. If your strategy is to buy on strength, they are especially damaging since that’s right around the time they turn.

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What made this market environment even trickier? While market-cap weighted indexes traded sideways, equal-weighted indexes looked just fine. Take the Invesco Russell 1000 Equal Weight ETF (EQAL) and Invesco S&P 500 Equal Weight ETF (RSP). Since November, they both trended nicely above their 21-day moving averages while the S&P 500 couldn’t cobble together more than a couple of weeks above its 50-day line.

Revenge Of The Average

EQAL joined SwingTrader on Feb. 4 after breaking out to all-time highs (1). The relative strength line launched to its highest level in nearly a year on the day of our entry. We still started it as a half position even with its low Average True Range (ATR). It was just below 1% at the time. That smaller risk profile allowed us to give EQAL a little room even though it fell the next day (2).

What’s the difference between the EQAL and its counterpart the iShares Russell 1000 (IWB)? EQAL tracks the “average” performance of the largest 1,000 stocks. Since it’s an equal-weight index, any 10 stocks you choose will roughly represent 1% of the weight for the portfolio, whether it’s the 10 largest or 10 smallest.

IWB by contrast gives more weight to the trillion-dollar companies. The top 10 don’t represent 1% of the portfolio weight, rather it’s 33% of the portfolio move. That sideways movement that plagued the S&P 500, Russell 1000 and Nasdaq composite can firmly be laid at the feet of those top 10 companies.

The uptrend in the equal-weighted indexes showed that the downtrend wasn’t plaguing everything or even most stocks. It was the fall of the giants and the rise of the rank and file.

The Alternate Russell 1000

After EQAL quickly recovered from its early misstep (3), we added a quarter position once we had a profit over one ATR (4). Because we went with a quarter position, it didn’t drive up our average cost. That allowed us to weather the storm when EQAL had a sharp one-day pullback (5).

With it bouncing at its 10-day line, we added another quarter position, bringing it to a full position (6). Now that we had some cushion on the position, it was OK to go deeper. Plus, we still had a low ATR to balance out the full position size.

When we started trimming the position, there were two reasons. First, it can often benefit a trade to take some profits into strength. It helps keep the trade green. We also wanted to recognize the strength that was coming back to market-weighted indexes on Feb. 25 and wanted to free up capital for any potential rotation (7). However, when that rotation didn’t materialize and instead the equal-weighted got stronger again, we bought our position back (8).

But when giants fall, they often drag a lot down with them. The Iran attacks have exacerbated uncertainty and the appetite for risk waned considerably.

We immediately started backing away from positions on our hardest hit stocks on March 2 (9). Though that day saw an upside reversal, the further destruction on March 6 shows that something has changed (10).

Many traders can’t bear the burden of this selling so we’ve gone to cash to wait for the next opportunity.

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