Big Picture - Avoid the Pot Holes

As we end the month of May and summer is just around the corner, the overall market has spent the last two weeks forming a healthy 25-point bull flag. The psychological level of 600 in the S&P has continued to act as resistance since the market breakdown began back in March. Over the past 90 days, we've experienced both a bear market drop and a complete V-bottom recovery, almost as if nothing happened. It's truly a remarkable market. I've said this a few times over the past few weeks, but when you consider a 20% drop followed by a 20%+ rally within just three months, it's pretty insane to think about.

As volatility continues to contract, the daily fluctuations of the market up here feel like watching paint dry compared to the wild days we saw back in April. But boring is good. Boring combined with a slowly trending market often equals new highs in the summer.

Right now, we have two leading sectors that are rarely at the front of the pack. Consumer Staples is just 1% away from retesting all-time highs, within a massive bull flag that has been forming for nearly two years at this point.

In close second place, we have Utilities, which is just 2% away from all-time highs and trending in a textbook Stage 2 breakout.

The smart money is on these two sectors to lead once the S&P clears the 600 area of resistance.

Telecom isn't far behind in the leadership race, demonstrating a clear Stage 2 breakout. Recently, however, it has paused along with the broader market, flagging out before its next run toward previous highs.

Similarly, Tech and the QQQ have maintained their steep Stage 2 breakouts but have recently paused, forming a bull flag within their ongoing bullish trends.

On the flip side of this temporary market pause within the broader Stage 2 breakout, some sectors haven't benefited significantly from this V-bottom recovery.

Healthcare remains locked near the lower range of its Stage 4 breakdown and should be avoided for now. It appears poised to push to new lows before any real reversal emerges. If that happens, it might experience a snap-back rally similar to Materials, which have rallied back to the upper end of their Stage 4 breakdown and started flagging.

Biotech, like Healthcare, has also shown considerable weakness, influenced by uncertainty about whether the current administration will continue pressing for lower prices. Additionally, the "drill, baby, drill" commentary has kept the Energy sector under pressure.

Broadly, as summer begins and trading volumes decline, SPY below 600 signals caution—like a blinking yellow traffic light urging us to slow down. It's a moment to prepare to stop, wait patiently for the light to turn green (breaking and closing above 600), carefully look both ways, and then proceed toward new all-time highs.

The clearest routes forward appear to be Consumer Staples, Utilities, and Tech, while Healthcare, Biotech, and Energy are filled with potholes.

As much as those roads look, bending a rim on a pot hole is often far more costly and annoying. Lets focus on the smooth pavement with the least resistance. 

                                                                                 

From Bennett

Nasdaq