With equities surging to new all-time highs yesterday, several more major index ETFs joined the overbought club as those that are still neutral have also come increasingly close to overbought levels.  Whereas most of these ETFs had been sitting in the red versus one week ago yesterday, today only the Dow (DIA) sits lower by 7 bps.  Other large caps have done better but are also underperforming as the S&P 100 (OEF) and Nasdaq (QQQ) have the second and third worst gains in this time.  Meanwhile, small caps have begun to surge from beneath the 50-DMA.  The Core S&P Small Cap (IJR) and Micro-Cap (IWC) both have risen well over 3% now in the past week. Another small-cap index, the Russell 2000 (IWM), has also rallied through the 50-DMA but on a smaller gain of 2.64%.

In the past couple months, defensive sectors have been rallying to new highs while more cyclical sectors continued to sit below their previous highs.  There is now starting to be some rotation away from defensives and into cyclicals.  For most of June and into last week, Utilities (XLU) had been trading at very overbought levels but XLU has finally seen some mean reversion. It has fallen 2.51% in the past week bringing it only 1.46% above the 50-DMA  and moved back into neutral territory.  Real Estate (XLRE) is a similar story now down 2.34% over the past five days after hovering around extreme overbought levels for a solid portion of last month.  Granted, XLRE and XLU are now at the bottom of their recent uptrends earning them a good timing score.

Inversely, Financials (XLF) have been ripping higher after major financial plays got the all clear in last week’s stress tests. This has sent the sector higher by over 3% from just above the 50-DMA.  The sector has approached extremely overbought territory in a very short span of time. Right on XLF’s heels in terms of overbought/oversold levels is Materials (XLB). The second best performer in the past week, XLB has gotten a boost from trade tailwinds over the weekend as it finished yesterday at the highs of the day. Start a two-week free trial to Bespoke Institutional to access our Trend Analyzer tool and much more.

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