As shown below, the S&P 500 recently ticked into extreme overbought territory, which also bumped it up against the top of its uptrend channel. After hitting these levels, the index promptly pulled back last Friday, and it’s lower yet again this morning.
For now, the sell-off seems to be end-of-month re-positioning ahead of what is historically a weaker time of year for stocks (August and September). As long as the bottom of the uptrend channel can hold, bulls will be okay, although it may not feel that way as it happens.
Below is a look at our trading range charts for the major S&P 500 sectors (Real Estate is not included). Over the last week, the major rotation that we’ve seen has been out of sectors that had been leading (Tech, Consumer Discretionary) and into sectors that had been lagging (Industrials, Financials). Overall, most sectors have built up a pretty solid cushion over the last few months that would allow for a drop of a few percentage points without doing much technical damage.