Below is an updated look at our trading range charts for the S&P 500 and its major sectors (Real Estate not included). In each chart, the light blue shading represents the sector’s “normal” trading range, which is one standard deviation above and below the 50-day moving average (white line). The red zone represents overbought territory, which is between one and two standard deviations above the 50-DMA, while the green zone represents oversold territory.
As major indices have switched from trending higher to trending lower over the last two months, stocks are spending a lot more time in oversold territory. For the S&P 500, the index is back into oversold territory after failing right at resistance at its 50-day moving average. The technical set-up for the S&P is not good right now.
The only sectors with positive technicals right now are the two defensive sectors — Consumer Staples and Utilities. That should tell you something. The market is trading like we’re headed for an economic slowdown.