Methodology Note: Risk regime scores are proprietary technical indicators developed by Element Squared based on moving averages, RSI, momentum, and breadth factors. Scores range from -100 (extreme RISK OFF) to +100 (extreme RISK ON). RISK ON (score >+50) indicates bullish technical conditions, CHOP (-50 to +50) indicates mixed or neutral conditions, and RISK OFF (score <-50) indicates bearish technical conditions. These scores represent our assessment of current market conditions and should not be construed as predictive of future performance.

SPY delivered a strong performance on Tuesday, surging $4.92 or 0.66% to close at $750.56 and printing fresh all-time highs. The index maintains a commanding position above all key moving averages with the composite score rising to +70 RISK ON. The short-term score holds at +50 RISK ON as SPY sits 2.3% above its 20-day MA at $733.35. The medium-term strengthens to +75 RISK ON with the index 7.5% above its 50-day MA at $698.30. The long-term also holds at +75 RISK ON as SPY extends its premium above the 200-day MA to 10.9% at $676.87. The VIX remained relatively steady at 16.9, signaling continued complacency despite the new highs. Sector breadth has strengthened dramatically to 5 RISK ON with Technology, Healthcare, Real Estate, Consumer Discretionary, and Industrials all holding elevated scores, while the absence of any RISK OFF sectors marks the healthiest breadth configuration in weeks.

Sector Leadership

5 sectors RISK ON, 6 CHOP, 0 RISK OFF — Breadth expands as market achieves cleanest sector profile in weeks:

💡 What We’re Watching

• SPY surges $4.92 to $750.56, printing fresh all-time highs above 20-day MA at $733.35 — Tuesday’s strong 0.66% gain to $750.56 marks a decisive breakout to new all-time highs and confirms the market’s ability to extend the rally despite approaching the Memorial Day holiday. The index sits 2.3% above its 20-day MA, 7.5% above the 50-day MA at $698.30, and 10.9% above the 200-day MA at $676.87—a configuration that demonstrates powerful momentum across all timeframes. The successful breakout to new highs validates the constructive consolidation over the past week and suggests further upside potential.
• VIX holds steady at 16.9, signaling persistent complacency at new highs — The VIX’s modest tick up to 16.9 from last week’s 16.7 remains near multi-month lows and indicates investors are not pricing meaningful downside risk even as SPY prints fresh all-time highs. This combination of new highs and low volatility has historically preceded either continued rallies in sustained trends or sharp reversals when complacency becomes extreme. The current reading suggests the market is in a confident, trend-following mode rather than a fearful or uncertain environment.
• Zero RISK OFF sectors—the cleanest breadth configuration in weeks — The complete absence of RISK OFF sectors for the first time in recent memory represents a dramatic improvement in market health. Utilities’ upgrade from RISK OFF (-38) to CHOP (+25) and Materials’ advance from RISK OFF (-24) to CHOP (+50) mark the final elimination of deeply negative sectors. When combined with 5 RISK ON sectors and 6 CHOP, the 5-6-0 configuration signals broad participation and reduces the risk of sector-specific weakness dragging down the broader market.
• Technology extends dominance with +100 score and +15.3% 20-day return — XLK continues to lead all sectors with an RSI of 75.6 and a 20-day return of +15.3%, maintaining exceptional momentum despite increasingly overbought conditions. The sector remains above all moving averages with strong breadth metrics, demonstrating continued institutional conviction in technology leadership. While the RSI of 75.6 is approaching extreme overbought territory typically associated with near-term pullbacks, the sustained strength suggests the leadership can persist through short-term consolidations.
• Industrials upgrades to RISK ON (+75), marking important breadth expansion — XLI’s promotion from CHOP (-12) to RISK ON (+75) represents one of Tuesday’s most significant sector developments. The sector’s move above all moving averages with an RSI of 54.0 and a 20-day return of +1.1% suggests the economic uncertainty that pressured Industrials in recent weeks is dissipating. This upgrade is particularly meaningful given Industrials’ sensitivity to growth expectations—when both Technology (growth) and Industrials (cyclical growth) hold RISK ON status, it typically signals confidence in sustained economic expansion.
• Energy downgrades sharply to CHOP (0) as momentum evaporates — XLE’s collapse from RISK ON (+62) to neutral CHOP (0) marks the session’s most notable sector weakness. Despite posting a +1.9% 20-day return, Energy now sits above only its 200-day moving average with an RSI of 44.1, indicating deteriorating technical momentum. The sharp downgrade suggests profit-taking in the commodity complex or concerns about demand as the cyclical trade rotates into other areas. This development warrants close monitoring, as Energy’s strength has provided valuable diversification in recent weeks.

The Bottom Line

Tuesday’s $4.92 surge to $750.56 and fresh all-time highs confirms the market’s ability to extend its rally even as it approaches the Memorial Day holiday and increasingly overbought conditions. The composite score advancing to +70 RISK ON with all three timeframes holding elevated readings—short-term +50, medium-term +75, long-term +75—reinforces the intermediate-term uptrend remains intact with improving momentum. The VIX holding steady at 16.9 signals continued complacency, while the breakout to new highs above the 20-day MA demonstrates sustained buying pressure.

In our view, the most significant development is the achievement of zero RISK OFF sectors for the first time in weeks. The 5-6-0 breadth configuration—5 RISK ON, 6 CHOP, 0 RISK OFF—represents the cleanest sector profile we’ve seen in recent memory. Utilities’ upgrade from RISK OFF (-38) to CHOP (+25) and Materials’ advance from RISK OFF (-24) to CHOP (+50) eliminate the final pockets of severe weakness, while Industrials’ promotion from CHOP (-12) to RISK ON (+75) expands participation into cyclical growth. This breadth expansion, combined with sustained strength in Technology (+100), Healthcare (+100), Real Estate (+100), and Consumer Discretionary (+100), provides a more balanced and durable sector foundation than in prior weeks.

Technology’s exceptional performance—RSI 75.6, 20-day return +15.3%—continues to anchor the advance with the highest score and returns across all sectors. Healthcare’s perfect +100 score with RSI 61.3 and +3.5% 20-day return validates last week’s breakout and provides defensive diversification. Real Estate’s +100 score with RSI 57.1 and +2.8% 20-day return signals late-cycle rotation is gaining traction. Consumer Discretionary’s sustained RISK ON status (+100) with RSI 55.5 and +1.4% 20-day return confirms the consumer spending breakout from last week has gained follow-through momentum. Industrials’ upgrade to +75 with RSI 54.0 and +1.1% 20-day return represents the session’s most notable breadth improvement, suggesting confidence in economic growth is broadening beyond technology and healthcare into traditional cyclical exposures.

The CHOP-regime sectors present a mixed picture. Consumer Staples’ downgrade from RISK ON (+58) to CHOP (+50) with RSI 47.2 reflects the natural rotation away from defensives as risk appetite strengthens. Financials continue to frustrate with a +50 score and flat +0.1% 20-day return despite holding RISK ON in recent weeks—the sector’s inability to participate meaningfully continues to raise questions. Communication Services at CHOP (+50) with RSI 49.4 and -0.3% 20-day return shows ongoing consolidation. Materials’ upgrade from RISK OFF to CHOP (+50) represents notable improvement despite the -1.5% 20-day return and RSI of 46.7, suggesting the worst of the commodity weakness may be behind us. Utilities’ dramatic upgrade from RISK OFF to CHOP (+25) with RSI 40.6 marks significant progress despite continued relative weakness.

Energy’s sharp downgrade from RISK ON (+62) to CHOP (0) stands out as Tuesday’s primary concern. The sector’s collapse below its 20-day and 50-day moving averages with an RSI of 44.1 despite maintaining a +1.9% 20-day return suggests momentum has evaporated rapidly. This development could signal either profit-taking after the recent run or concerns about demand as the cyclical trade rotates elsewhere. Given Energy’s role as a diversifier and inflation hedge, this weakness warrants close monitoring even as it doesn’t yet threaten the broader advance.

The combination of fresh all-time highs, zero RISK OFF sectors, and five RISK ON sectors represents the most constructive technical environment in weeks. However, the VIX at 16.9, Technology’s RSI of 75.6, and SPY’s 10.9% premium to its 200-day moving average signal the market is approaching stretched conditions. The absence of meaningful fear or sector-level distress reduces the probability of sharp pullbacks but also suggests limited margin of safety. Markets that achieve this type of clean breadth and momentum typically either consolidate to work off overbought readings or continue grinding higher in a low-volatility trend-following regime.

For portfolio positioning, the expanding breadth argues for maintaining exposure across the five RISK ON sectors while being selective about CHOP-regime holdings. Technology warrants core exposure despite elevated valuations and overbought RSI given its sustained leadership. Healthcare’s perfect score and improving fundamentals justify continued overweights. Real Estate’s late-cycle strength and Consumer Discretionary’s consumer spending momentum support tactical allocations. Industrials’ upgrade creates new cyclical exposure opportunities. The six CHOP sectors—Staples, Financials, Communication Services, Materials, Utilities, Energy—require more nuanced approaches based on risk tolerance and conviction. Energy’s sharp downgrade from RISK ON to CHOP suggests caution until momentum stabilizes. The market’s ability to eliminate all RISK OFF sectors while maintaining five RISK ON holdings suggests this consolidation is resolving constructively. However, the combination of new highs, low VIX, elevated Technology RSI, and persistent Financials/Energy weakness argues for maintaining disciplined position sizing and avoiding complacency despite the overwhelmingly positive technical backdrop.