Despite an endless parade of anxiety-provoking headlines about trade talks and the global economy—is it slowing?—the technical background for the S&P 500 index continues to track my expectations

I believe oversold lows will likely develop fairly soon at important technical support near 2800 on the S&P 500. Action in the short-term 14-day relative strength index (RSI) momentum indicator, which is helpful in timing 2-3-week swings in the market, backs up my expectations for an oversold rebound from current levels.

You’ll note in the bottom panel of the chart below that the daily RSI is bottoming near oversold levels as the S&P 500 retests its May 13th lows at the blue support band. Look for a bounce into month-end followed by an ongoing zig-zag pattern through the summer and into the third quarter, as is illustrated by the red and blue arrows below.

What to do? Investors should remain patient, prepared, and watchful, with an eye to increasing equity exposure into further uncertainty in early Q3. Keep the powder dry.

So steady as she goes folks, but be ready to engage.

The S&P 500 index (daily)

Steady as She Goes Captain, But Be Ready to Engage

Here are my noteworthy leaders and laggards for the week.

Defensive leadership is emerging, notably in staples and utilities, two sectors that are beginning to rally above their March-April relative performances versus the S&P 500, and establishing higher relative highs and lows.

While it is always important to acknowledge and not fight a developing trend shift, my view is this defensive rotation is likely to prove short-lived and ultimately a head fake.

Where the leadership is correcting but not broken: technology and consumer discretionary sectors. Their relative performances are pulling back but have yet to break below a their 200-day moving averages.

Among the laggards, both energy and materials remain in relative performance downtrends and probing new lows.

Steady as She Goes Captain, But Be Ready to Engage

Bullpen: While the financial sector remains in a relative performance downtrend, a move above the 200-day moving average would support overweighting the sector. Stay tuned.

Steady as She Goes Captain, But Be Ready to Engage
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