SPY pulled back sharply to $739.12, retreating $9.05 from Wednesday’s $748.17 close in the largest single-day decline since early April. Despite the selloff, the index remains well above all key moving averages with the composite at +52 RISK ON. The short-term score eased to +60 RISK ON as near-term breadth contracted. The medium-term advanced to +70 RISK ON with SPY now 7.2% above its 50-day MA. The long-term holds firmly at +95 RISK ON with the index 9.8% above its 200-day MA at $673.33. The sector count stands at 3 RISK ON with Technology commanding the top spot at +68, though defensive positioning is showing mixed signals with Consumer Staples strengthening while Utilities remain under pressure.

Sector Leadership

3 sectors RISK ON, 7 CHOP, 1 RISK OFF — Tech maintains leadership as market digests gains:

💡 What We’re Watching

• SPY pulls back $9.05 to $739.12 in sharpest decline since April — The S&P 500 suffered its largest single-day retreat in over a month, falling 1.2% from Wednesday’s $748.17 close. Despite the selloff, SPY remains firmly above all key moving averages: 2.1% above the 20-day MA at $723.80, 7.2% above the 50-day MA at $689.67, and 9.8% above the 200-day MA at $673.33. This pullback represents a healthy consolidation after the extended advance from the March lows.
• RSI cools to 69.6 from extreme overbought levels — After spending several sessions above 95, the 14-day RSI has retreated to 69.6, just below the 70 overbought threshold. This cooling suggests the market is working off the extreme momentum condition that developed during the recent rally. The decline in RSI without a material breach of support levels is constructive for the intermediate-term trend.
• VIX edges higher to 18.19 but remains below 20 — Implied volatility rose modestly to 18.19, reflecting increased caution but staying well below the 20 threshold that typically signals elevated fear. The measured increase in volatility suggests investors view the pullback as a normal consolidation rather than the start of a deeper correction.
• Technology maintains leadership with +14.1% 20-day return — Despite the broad market selloff, Technology remains the clear sector leader with a composite score of +68 and a 20-day return of +14.1%. The sector sits above all moving averages with an RSI of 73.5, indicating continued strength even as the broader market digests recent gains. This resilience in the market’s largest sector provides important support for the overall trend.
• Defensive bid emerges in Consumer Staples as Utilities collapse — Consumer Staples advanced to RISK ON (+51) with a 20-day return of +2.8% and RSI of 66.7, suggesting investors are adding defensive exposure. Meanwhile, Utilities dropped to RISK OFF (-42) with the sector now below all moving averages and posting a -4.1% 20-day return. This divergence within defensive sectors bears watching as it may signal a rotation within safety trades rather than broad risk-off positioning.
• Energy completes reversal from April weakness — Energy surged to RISK ON (+54) with a 20-day return of +8.0%, completing a remarkable reversal from the sector’s position as the weakest in April. The sector now sits above all moving averages with an RSI of 61.4, suggesting the strength has room to run before becoming extended.

The Bottom Line

Thursday’s $9.05 decline to $739.12 represents the sharpest pullback since early April, yet the market’s internal structure remains constructive. The composite score of +52 keeps all three timeframes in RISK ON territory, with the long-term at +95 reflecting SPY’s 9.8% premium to its 200-day moving average. The cooling of RSI from extreme levels above 95 to 69.6 suggests the market is successfully digesting the recent rally without materially weakening the underlying trend.

In our view, this pullback is a healthy development that extends the life of the advance by working off overbought conditions. The fact that SPY remains well above all key moving averages — 2.1% above the 20-day, 7.2% above the 50-day, and 9.8% above the 200-day — indicates the intermediate-term trend remains intact. The measured rise in VIX to 18.19 suggests investors view this as a normal consolidation rather than the start of a deeper correction.

The sector landscape is evolving in notable ways. Technology’s resilience at +68 with a +14.1% 20-day return provides crucial support for the broader market, as the largest sector continues to command leadership. Energy’s reversal to RISK ON (+54) with a +8.0% 20-day return marks a significant shift from April’s weakness and adds breadth to the advance. The emergence of Consumer Staples at RISK ON (+51) alongside the collapse in Utilities to RISK OFF (-42) presents an interesting divergence within defensive sectors that may signal a nuanced rotation rather than broad risk-off positioning.

The key test ahead will be whether SPY can hold above its 20-day moving average at $723.80. A bounce from current levels would confirm support and potentially set the stage for a continuation of the advance. Conversely, a break below the 20-day MA would suggest the market needs additional time and/or downside to complete the consolidation process. Given the RSI has cooled to 69.6 and SPY maintains a healthy distance above all key moving averages, we view the probabilities as tilted toward consolidation rather than correction.

The narrowing of sector leadership to just 3 RISK ON sectors (down from 5 in late April) does warrant monitoring, as it suggests the market is becoming more selective. However, the fact that the three leaders — Technology, Energy, and Consumer Staples — represent diverse market exposures (growth, commodities, and defensives) provides some comfort that this is not simply a narrow momentum chase. We continue to favor a constructive intermediate-term outlook while acknowledging that near-term choppiness is likely as the market works through the recent extension.