The S&P 500 got within 16 points of its all-time intraday high yesterday, but the index couldn’t hold the rally into the close like it had been doing in recent trading days. Buyers appeared to take the afternoon off. As we head into another day of trading, below is a look at our S&P 500 sector trading range charts, so you can see where different areas of the market currently stand. In the charts, the white line represents each sector’s 50-day moving average (DMA), while the light blue shading represents its “normal” trading range — one standard deviation above and below the 50-DMA. Moves into or above the red zone are considered overbought, while moves into or below the green zone are considered oversold.
For the S&P 500 as a whole, the index remains in overbought territory, but its range continues to tighten dramatically as volatility has dropped and sideways action has taken hold. Whenever trading ranges tighten like this, conventional wisdom suggests that a big move in either direction is on the horizon. Bulls are certainly hoping that move is to the upside, but a wise investor once said, “Hope is not a winning investment strategy.”
Looking at the ten sectors, Consumer Discretionary’s chart looks somewhat similar to the S&P 500’s in that it is trading sideways and its range is tightening. However, the sector hasn’t yet made a new 2016 high while the S&P 500 as a whole has. While Consumer Discretionary trades sideways, Consumer Staples remains in an uptrend. It too, though, has yet to take out its prior 2016 highs.
While Energy’s multi-year chart still doesn’t look great, its action over the last 3-4 months has been extremely positive. From its lows in late January/early February, Energy has been trading in a tight uptrend channel — bouncing off of support at the bottom of this channel every time it gets there. The Financial sector’s long-term chart doesn’t look great either, but it too has seen better days more recently. Gains over the last two months have allowed the Financial sector to move slightly above the top of its long-term downtrend channel.
Looking at Health Care, the sector recently broke above its April highs, but the move has left it quite extended into overbought territory. Both Industrials and Materials have two of the better-looking charts out of the ten sectors at the moment, while Technology is as range-bound as it gets. Finally, the two main defensive sectors — Telecom and Utilities — continue to consolidate after experiencing sharp moves higher from February through April.