RSP Potential Patterns in 2007

In the last week, the global equity markets had some gyrations in prices. One of the most concerned ETFs for me is RSP, the equal-weighted stock index fund. I trade it at 2% intervals, it did not stop going up from mid-August, 2006 until late-February, 2007. I did not have a single buy opportunity after nine sales until last week when I had three purchases and one sale.

Based on this disconnected pattern of trading in RSP, I am wondering if the US equity market has another 6% to 8% downward pressure in the coming months to make the connection with the mid-May, 2006 high. The total correction would be around 12%. This means that the Dow has to come down to around 11,500 for this connection in the next few months, say until late April.

Suppose the summer months of May through August will be flat, we still have four months left to recover this correction for the year. If the year is a normal year with a 10% return, now it is still a good time to invest even if there is a 6% to 8% downward potential. I expect RSP will reach above $52.00 by the year-end.