The major index ETFs began the day yesterday split down the middle with half overbought and the other half still neutral. A large gap higher at the open led to a few more also entering overbought territory; namely the large-cap S&P 100 (OEF) and Nasdaq (QQQ). Of this group, QQQ has surged the most over the past week and is now sitting almost 3% higher.  While the gap higher did make conditions generally more overbought across the board, some intraday selling prevented things from reaching any sort of extreme level. With the Core S&P Small-Cap’s (IJR) gains in yesterday’s session, only the Micro-Cap ETF (IWC) still remains below the 50-DMA.

Panning over the charts of these same ETFs, the breakout to new highs is evident only for large caps.  The Dow (DIA), Russell 1000 (IWB), and S&P 500 (SPY) clearly finished at new highs.  The only non-large cap index ETF to also reach a new high is the Russell Mid Cap (IWR).  Other small caps and mid caps all have a long way to go to reach last year’s highs though they have been progressing upwards in recent weeks.

With the market reaching new highs, one would expect that most of the movement has been a result of cyclical high growth sectors, but that simply has not been the case.  Defensives have continued to perform well with Consumer Staples (XLP), Utilities (XLU), Health Care (XLV), and Real Estate (XLRE) all sitting firmly at extremely overbought levels on solid gains (though XLP has lagged a bit this week).  But now cyclical sectors have also begun to see a string of buying in the past week. Sectors like Communication Services (XLC), Industrials (XLI), and Tech (XLK) have all risen well over 2.5% and are slightly outperforming this week.  While the performance of these sectors has been strong, Energy (XLE) has actually seen the largest gains over the past five days as it works off oversold readings from last week.  This is also the only sector that is not in an uptrend.  With yesterday’s substantial gains, it heads into trading today just barely below the 50-DMA.

The charts of the defensives are a bit better of a look into just how much they have outperformed in recent weeks.  For most of the year, these have sat in solid, and relatively uninterrupted, uptrends. Whereas other sectors still sit a decent distance off of their 52-week highs, XLU, XLP, and XLRE all finished yesterday at another new high. Given that these sectors have become overextended, it is increasingly likely that they could see some sort of pullback. Additionally, while defensives have sat in uptrends (with their moving averages reflecting this), other sectors’, like Materials (XLB), Communication Services (XLC), and Industrials (XLI), moving averages have become very flat recently. XLE, despite strong performance this week, actually still has downward sloping moving averages.

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