S&P 500 Sector Trading Range Charts - Tech Into The Stratosphere

by: Bespoke Investment Group

Below is an updated look at our trading range charts for the S&P 500 and its ten sectors.

For each chart, the white line represents the 50-day moving average. The light blue band represents the index's "normal" trading range, which is between one standard deviation above and below the 50-day moving average. The red zone is "overbought" territory, and it's between one and two standard deviations above the 50-day. Moves into the red zone are common during market rallies, but when prices reach the top of this range, you typically see a pullback. The green zone is "oversold" territory, and it's between one and two standard deviations below the 50-day. Moves into the green zone are more common during market declines, but when the price reaches the bottom of the green zone, you typically see a bounce.

As shown below, the S&P 500 has been trending in overbought territory for more than a month now, with just a brief dip into its normal trading range more recently. Right now the index isn't at an extreme overbought level, but it is notable that we haven't been down near the 50-day in quite a while.

The main sector that stands out in our trading range charts is Technology. Big moves higher on earnings by Tech-behemoths Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOGL) have pushed the Tech sector to the very top of the red zone, meaning it's currently two standard deviations above its 50-day. The rally we have seen in Tech over the last couple of months has been virtually non-stop, and unfortunately this can't last forever. At some point the sector will take a breather, so be prepared. When the air comes out a bit, keep an eye on support levels to see if they hold, and if they do, it will be a prime buying opportunity.

While Tech has been straight up lately, two other cyclical sectors that have been trending sideways are Industrials and Consumer Discretionary. As you can see in their charts below, their current levels are essentially right where they were at the end of 2013. This year we have seen rotation in and out of various sectors, with one or two sectors taking the lead to push the broad market to new highs while other sectors remain stagnant. If Tech does take a breather soon, we'll be watching to see if sectors like Industrials and Consumer Discretionary can pick up the slack to keep this market in rally mode.