On Wednesday, only 4% of the S&P 500’s holdings logged gains — a pretty rare occurrence. Since the start of 2024, this has only happened three other times:

• August 5, 2024: The last day of the summer correction
• December 18, 2024: The Fed’s hawkish cut
• April 4, 2025: Tariffs

Let’s recall that major trading lows were etched last August, and again just a few weeks ago in early April. The S&P 500 ($SPX) dropped 10% and 21%, respectively, from its peak to trough both times, with the lows being marked by emphatic capitulation events (April 7 was the real pivot low). The market’s rubber band violently snapped back in the ensuing weeks, both times.

FIGURE 1. PAST LOWS IN THE S&P 500 INDEX. Note the rebounds following the August 5, December 18, and April 4 drops.With the SPX now having gained 20% from the April low, the setup is more like mid-December 2024. The index had just gained 19% from early August through early December and was hovering near 6,100. The FOMC’s actions put a major dent in the calm uptrend.

The S&P 500 didn’t completely crumble after that, spending the next 10 weeks backing and filling. But the market’s character changed, and the cracks eventually gave way to the waterfall decline.

So, what does that tell us about this moment? There’s a clear risk given the one-sided advance the last few weeks, but, with bullish patterns still in play and the $SPX having built up a big cushion, it can afford to back and fill again now. It’s the first gut punch in four weeks, and the market must prove it can absorb it.

Short-Term View of the S&P 500

The drawdown measured from this Monday’s high now stands at -2.4% — most of which happened on Wednesday. Given how small the moves have been over the last few weeks, Wednesday’s big decline hit the 14-period relative strength index (RSI) on the two-hour chart very hard. It’s now at 41, which is very close to the 30-oversold threshold.

Again, we’ve seen the short-term indicator fall to oversold territory several times, even during the market’s upswing from August through December. Seeing that happen again this time wouldn’t be a surprise. If it happens, it will be important to see the ensuing bounce pull the SPX back to overbought territory relatively soon. Remember, we went nearly four months between overbought readings from late January through mid-May.

FIGURE 2. TWO-HOUR CHART OF THE S&P 500 WITH RSI.

S&P 500 Patterns

Despite the sell-off, there was no change in the patterns at work. The two bullish patterns remain in play, with targets of 6,125 and 6,555, respectively. The S&P 500 started Thursday, at about 2.5% above the last breakout zone (5,695).

FIGURE 3. DAILY CHART OF THE S&P 500 WITH BULLISH PATTERNS. Here you see the pattern with a 6,125 target.

FIGURE 4. DAILY CHART OF S&P 500 WITH 6,555 PRICE TARGET.

Monitor the VIX

Not surprisingly, the Cboe Volatility Index ($VIX) gained 15% on Wednesday in response to the market’s sell-off. It remains close to 20, but continues to log higher lows, which has been the trend since late 2024. Indeed, it’s way off spike highs from April, but it’s a trend worth watching.

Let’s recall that the VIX never truly capitulated in 2022, but its trend of higher lows coincided with the equity market’s downtrend. When the SPX logged a true low in October 2022, lower lows in the VIX became evident. This lasted through this past summer.

If the snapback in the SPX turns into a longer, new uptrend, the VIX’s uptrend will morph into a downtrend again.

FIGURE 5. WEEKLY CHART OF THE CBOE VOLATILITY INDEX ($VIX).

Bonds Display Bullish Patterns

The bullish pattern in the weekly 30-Year Treasury yields and 10-Year Treasury yields is crystal clear. An acceleration through the 2023 highs after Wednesday would have an obvious negative effect on stocks.

As discussed before, the equity market has shown it can advance with higher rates, as long as said rates go higher gradually. The intermittent up-moves in rates have been capped for the last two years as well. Thus, stocks have been able to withstand it. That wasn’t the case from January to September 2022, and that’s the potential concern.

FIGURE 6. WEEKLY CHART OF THE 30-YEAR US TRASURY YIELD INDEX.

FIGURE 7. WEEKLY CHART OF THE 10-YEAR US TREASURY YIELD INDEX.

Bitcoin Holding Strong

So far, Bitcoin has maintained noticeable relative strength even as stocks got hit hard on Wednesday. Simply put, continuing to hold above this breakout zone would keep the new measured move target of 142k in play.

FIGURE 8. WEEKLY CHART OF $BTCUSD WITH ITS MEASURED MOVE TARGET.

From another perspective, this move can also be viewed as the fourth wedge breakout since 2023. The prior three times, BTC’s 14-week RSI stayed very overbought for weeks before slowing down. The 14-week RSI is just approaching overbought levels, which suggests it has further to go.

FIGURE 9. WEEKLY CHART OF $BTCUSD WITH WEDGE BREAKOUTS AND RSI.

The financial media is flooded with commentary questioning whether the current rise in stock indexes is sustainable enough to mark the beginning of a new bull market. In short, have we gotten out of the woods, or are we in a clearing with more uncertainty to come?

There are many angles through which this stock market environment can be interpreted. Here, we’ll focus on a set of StockCharts Market Summary tools that provide insight by way of comparative performance: in short, using ratios to evaluate the qualitative dimensions of stock market participation.

This article is based on a simple market axiom: bull markets typically don’t thrive on defensive sectors. Bull markets reflect confidence in long-term growth prospects. Defensive sectors, in contrast, are where investors run to when they’re not confident about the economy.

Key Offense vs. Defense Ratios to Watch Right Now

With that said, let’s look at the Market Summary’s Key Ratios > Offense vs Defense panel. Here are the main ratios:

• Discretionary vs. Staples. Consumer Discretionary Select Sector SPDR Fund vs. Consumer Staples Select Sector SPDR Fund (XLY:XLP). This ratio reflects where investors believe consumers are likely to spend; toward discretionary items like entertainment, or toward essential goods like food and household products. Since consumer spending accounts for roughly 70% of U.S. GDP, this makes the XLY:XLP ratio a valuable indicator of broader economic sentiment.
• Technology vs. Utilities. Select Sector SPDR Fund vs. Utilities Select Sector SPDR Fund (XLK:XLU). This ratio tracks whether investors are leaning into a risk-on preference for growth and a low-rate environment, or leaning into a more defensive posture, where utilities tend to outperform.
• Biotech vs. Health Care. SPDR S&P Biotech ETF vs Health Care Select Sector SPDR Fund (XBI:XLV). This ratio highlights the difference between speculative risk-on vs risk-off. Biotech is among the most speculative and riskiest industries within all 11 sectors.
• Hotels vs. Utilities. Dow Jones US Hotels Index vs Dow Jones US Utilities Index ($DJUSLG:$DJUSUT). This ratio compares cyclical, consumer-driven hotel stocks (a classic risk-on sector) with defensive, recession-resistant utilities.

This chart lays it all out:

FIGURE 1. CHART OF MARKET SUMMARY RATIO LIST.  All of the ratios are in alignment, with a tilt toward a risk-on posture.

XLY:XLP is pulling back from a steep recovery. The Quadrant Lines gauge the strength/weakness of the ratio’s retracement. If the decline stays within the first top two quadrants, then the case for a risk-on recovery within this segment of consumer spending becomes more evident.

As for the other ratios, note the relation of price to near-term resistance (see blue dotted line). Like XLY:XLP, hotel spending vs. utilities appears poised for a breakout, so watch this space closely.

To stretch the Dow Theory tenet that stock indexes must confirm each other,  you can also transfer that idea to the domain of offense vs defense indexes. The XBI:XLV ratio has already broken above the spread’s near-term resistance, suggesting that risk-on may be a go; even moreso tech vs. utilities (XLK:XLU).

Discretionary Stocks in Focus: Can XLY Hold the Line?

Since spending plays a clear and immediate role in GDP calculations, the focus will be on discretionary vs. staples spending. In light of this, take a look at this daily chart of XLY.

FIGURE 2. DAILY CHART OF XLY. Discretionary stocks are pulling back after an impressive run capped off by a strong runaway gap.

XLY is pulling back slightly after a sharp gap up, having recently hit a local high near $218. Combined with Price Channels to highlight swing highs and lows, the green-shaded area marks the breakout range. While this zone may offer some support, don’t be surprised if XLY retraces further.

A more favorable and (historically) resilient support level lies in the yellow-shaded range between $189 and $192. A drop below this zone would signal further weakness, despite the presence of additional support around $177, shaded in red.

• Momentum-wise, the Relative Strength Index (RSI) is oscillating just below the 70 level, suggesting there’s still room for an upward move before entering overbought territory.
• Volume-wise, the Accumulation/Distribution Line (ADL), overlaid above the price chart, indicates strong accumulation, a bullish signal reflecting sustained buying pressure.

Staples Show Weak Momentum: What XLP’s Flatline Means

Now, let’s compare this to XLP which, at a glance, is both volatile and flat. Here’s a daily chart.

FIGURE 3. DAILY CHART OF XLP.  Staples may be performing relatively well, but there’s no overarching trend in sight.

Over the last year, the secondary trends show a series of bullish/bearish back-and-forth movements, but, cumulatively, there’s no indication that XLP is poised for a major breakout to the upside. XLP may present a favorable market for swing traders looking to fade short-term tops and bottoms, but as for long-term growth, there’s little evidence for a bullish or bearish case.

• Momentum-wise, the RSI is more or less flat, hovering at the 50-line with no real directional movement.
• Momentum-wise, the ADL shows accumulation and distribution on par with the price movement. There’s nothing to suggest that XLP is experiencing any degree of buying or selling pressure to push the price higher or lower.

How to Apply These Ratios to Your Market Outlook

Confirm the broader narrative. If you believe the broader market is poised to move beyond recovery, then the ratios, all of which favor a risk-on posture, should serve as a tentative green light.

Furthermore, use pullbacks to assess investor conviction. Volume and momentum-based indicators can help you gauge whether there’s real conviction behind the swing. Other indicators you can use to gauge the broad market indexes are all featured in my article on Dow Theory.

At the Close: Are These Ratios Signaling a Real Market Shift?

If these risk-on ratios continue to hold or break higher, they may offer early confirmation that this market isn’t just bouncing, but rather building. Remember that defensive sectors don’t lead bull markets. So far, the offense is making a compelling case; monitor the ratios from the Market Summary page to help guide you through the market’s uncertain environment.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your personal and financial situation, or without consulting a financial professional.

The bullish signals stacked up in April and May, but most long-term breadth indicators are still bearish. SPY and QQQ showed signs of capitulation in early April and rebounded into mid April. A Zweig Breadth Thrust triggered on April 24th and several other thrust indicators turned bullish in May. We also saw SPY and QQQ break their 200-day SMAs. TrendInvestorPro is tracking these signals and relevant exit strategies.

These are bullish indications for large-caps and, perhaps, stocks in the top half of the S&P 500. However, I would not call it a bull market until participation broadens. The chart below shows the S&P 500 EW ETF (RSP) and S&P MidCap 400 SPDR (MDY) moving back below their 200-day SMAs. The S&P SmallCap 600 SPDR (IJR) never came close and remains a big laggard.   

The bottom window is perhaps the most telling. It shows the percentage of S&P 1500 stocks above their 200-day SMAs. This long-term breadth indicator did not cross above 50% in May. Except for a 1-day dip on January 10th, this indicator was above 50% from December 2023 to February 2025 (bull market). It broke below 40% on March 10th and has yet to fully recover (bear market).

At the very least, a move above 50% is needed to show broadening participation worth of a bull market. This is how the market moves from bullish thrust signals to a bull market.  Until such a move, we are still in bear market mode and risk remains above average for stocks. Note that the S&P 1500 includes large-caps (500), small-caps (600) and mid-caps (400). Around 2/3 of components NYSE stocks and 1/3 Nasdaq stocks. It is a truly representative of the broader market.

Exit strategies are just as important as entries. The Zweig Breadth Thrust and the 5/200 day SMA cross provided entry signals in April and May. We now need an exit strategy. TrendInvestorPro put forth exit strategies for both signals and these are updated in our reports. This week we covered the gap zones in SPY and QQQ, long-term breadth signals, big moves in metals and continued strength in Bitcoin. Click here to take a trial and gain full access.

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My main question going into this weekend was, “Will the S&P 500 finish the week above its 200-day moving average?” And while the S&P 500 did indeed finish the week above this long-term trend barometer, our main equity benchmark is now within the gap range from earlier this month.

We’ll get to that crucial S&P 500 chart a little later, but first, I’d like to explain why gaps matter, why the price action post-gap is so important, and then apply these lessons to the SPX.

The “Gap and Run” Scenario Suggests an Influx of Buyers

One of two things tends to happen after a gap higher within an uptrend phase. The first scenario, which I call a “gap and run” pattern, is when additional buyers come in to push the price even higher.

Microsoft Corp. (MSFT) features this gap and run pattern, with the gap higher on their Q1 earnings report followed by an additional appreciation in price.  Basically, investors are not afraid to accumulate more MSFT, even after the stock gapped up from $395 to $430 overnight.

Did you catch our recent webcast, “Sell in May 2025: Seasonal Strategy or Outdated Myth?” We looked at the performance in May-June-July since the COVID low, then made a comparison between 2025 and the first half of 2022, when a break below the 200-day moving average was a sign of much further deterioration to come.  Check out this excerpt on our YouTube channel!

Shares of Howmet Aerospace (HWM) demonstrated a similar gap and run pattern recently, although this example is perhaps even more significant because the gap took the price to a new all-time high! Again, we can see that additional buyers are coming in and accumulating more HWM, fueling further gains after the gap.

The “Gap and Fail” Pattern Shows a Lack of Willing Buyers

Sometimes, a chart will show a very different path after the gap, forming what I’ve termed a “gap and fail” pattern.  Unlike the previous examples, here you’ll see that a lack of willing buyers causes the stock to quickly reverse lower into the range of the price gap.

In the case of semiconductor producer Monolithic Power Systems (MPWR), the gap higher earlier this month was followed by two additional up days, which propelled the stock above its 200-day moving average. This short-term pop higher was followed by a sudden downside reversal, representing an exhaustion of buyers after the upside gap.

First Solar (FSLR) is demonstrating a similar pattern to MPWR, with a gap higher which pushed the stock just above the 200-day moving average to test the 38.2% Fibonacci retracement level. A couple days later, FSLR was back below the 200-day moving average, followed by further deterioration that eventually closed the gap from earlier in May.

The S&P 500 Could Test Its Own Gap Support

So what do those example charts have to do with the S&P 500? Well, the SPX traded higher for about a week after the upside gap in early May. We’ve drawn a green-shaded range to highlight the gap from around 5725 to 5780. This gap includes the 200-day moving average and also lines up with the late March swing high.

I see the S&P 500 as in a constructive pattern as long as it remains above this price gap range. If we can see an upswing after this week’s pullback, then this could just be a pause within a broader recovery phase for the S&P.

On the other hand, if we see any further price weakness from the major benchmarks next week, then the chart of the S&P 500 will start to look pretty similar to other “gap and fail” charts that confirm a lack of willing buyers. If we do see that downside follow-through next week, we’d expect further deterioration to the 5500 level, representing a 50% retracement of the February to April selloff phase.

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

marketmisbehavior.com

https://www.youtube.com/c/MarketMisbehavior

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

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