The S&P 500 index concluded Thursday’s session at 5,171, marking a 1% increase and reaching fresh historical highs. This rally shifted the week’s momentum to positive, potentially marking the 17th gain in the last 19 weeks, unless the index falls by 0.4% on Friday. Since the end of October, the index, as monitored through the SPDR S&P 500 ETF Trust (SPY), has surged over 25%, a testament to the strong trend driving the U.S. equity market.
Currently, the breadth of the market remains healthy with 71% of the S&P 500 stocks trading above their 50-day average, and an even more impressive 74% surpassing the 200-day average. The latter is inching closer to the 75% threshold, a peak not reached since January and the highest since October 2021.
In a significant departure from previous weeks when the technology sector was predominantly at the forefront of the S&P 500’s advances, this week witnessed a nuanced shift in market leadership. Sectors that had previously lingered in the background, overshadowed by the tech behemoths, emerged as this week’s frontrunners. The materials sector led the charge with a 2.8% increase, closely followed by utilities, energy, and consumer staples, showcasing gains of 2.4%, 2%, and 1.73%, respectively. The tech sector, usually the market darling, found itself in the fifth spot, rising by 1.69%.
Despite the euphoria surrounding the S&P 500’s record-breaking run, a closer examination of the technical landscape reveals emerging caution signs. The index’s relentless upward trajectory has catapulted the Relative Strength Index (RSI) to a staggering 77, a figure not seen since January 2020, just before the global markets were roiled by the Covid-19 pandemic. Such elevated RSI levels are traditionally viewed as overbought signals, suggesting that the current pace of the rally might be stretching the bounds of sustainability.
It will be interesting to see how the market responds in the coming weeks as investors navigate through the highs and potential risks associated with extreme technical overbought signals.
