The S&P 500 has broken out nicely here, but we’d like to see it hold above these levels for at least a couple of weeks.
Over the last couple of months, we noted a number of times how tight the S&P’s trading range had become due to low volatility. You can see how tight the range had gotten in the chart below. For reference, the light blue shading below represents between one standard deviation above and below the S&P’s 50-day moving average. When trading ranges tighten up like this, the presumption is that the eventual breakout will be a big one. In this instance, we saw a pump-fake break lower on the Brexit news followed by a huge rally that has now caused an upside breakout. At this point, the upside breakout could still prove to be another pump fake just like the break lower was a couple of weeks ago. That’s why we said earlier that we’d like these new highs hold for at least a couple of weeks before sounding the all clear.
Below we provide one-year trading range charts for the ten S&P 500 sectors. At this point, Industrials is the only cyclical sector to make a new high like the S&P 500. Consumer Discretionary is the next closest to a new high, but other cyclicals like Technology, Financials, and Materials still have some work to do.