A recent breadth analysis of the S&P 500 suggests a potential pullback from its current resistance level of 4600. This analysis, conducted by Godzillanewz, a leading financial website, was based on the number of stocks in various sectors that have broken through resistance and reached new record highs.
The analysis revealed that the S&P 500 has seen a notable increase in outperformance of defensive and cyclical stocks, compared to stocks in traditionally more defensive sectors. This suggests that investors are becoming more risk-seeking, attempting to capitalize on the strong economic recovery in the U.S. However, this trend could be masking an underlying disconnect between these sectors and the broader S&P 500.
While the overall S&P 500 index may be at lofty levels, many individual stocks are still trading far below their pre-pandemic highs. This could signal that there is a disconnect between stocks that are benefiting from the economic recovery and those that are still trading at levels that suggest a downturn. As the markets continue to move higher, this divergence could trigger a pullback in the S&P 500 if the underlying stocks don’t catch up.
It’s important for investors to pay attention to these trends and the associated risks. If the divergence between stocks that are outperforming the index and those that have yet to recover continues, then this could be an indication of a potential pullback in the very near future. As such, investors should remain vigilant and diversify their portfolios to protect against losses in the event of a market downturn.
