Indexes Post Back-to-Back Weekly Gains
Last week the S&P 500 finished more than 1% higher and the Nasdaq added nearly 2% as the indexes recorded their second positive week in a row.
AI Sectors Fade While a Quiet Rotation Takes Shape Within Tech
At the sector level, AI-driven sectors like technology have underperformed while more cyclical and defensive areas have held up better. This has been the case not only over the last week but since early June.
The parts of the market that had the sharpest rallies earlier this year, including semiconductor stocks, have seen the biggest pullbacks as well. This is not too surprising, given that parabolic moves in the market tend not to be sustainable, as there is some natural profit-taking and consolidation that brings these sub-sectors down again. Keep in mind however that despite the recent pullback and rotation, many of these sectors are still up for the year. The SOX Semiconductor index is down about 20% from its June highs but is still higher by around 64% for the year.
Within the technology sector, we are also seeing a rotation. The semiconductor and hardware parts of tech are lagging, while the software and cloud sectors seem to be recovering. Names like Microsoft and Salesforce are rebounding while AI infrastructure stocks are lagging.
Oil Climbs on Middle East Escalation as Volatility and Small Caps Tell Their Own Story
Oil prices jumped on Tuesday and Wednesday as an escalation in the Middle East conflict reinforced the fragility of the U.S.-Iran ceasefire agreement. The price of U.S. crude briefly climbed to about $76 per barrel on Wednesday before pulling back to around $71 by Friday afternoon.
The VIX fell for the second week in a row, slipping to its lowest level in more than six months, finishing the week at 15.0, down from a recent high of 22.2 reached on June 10. Meanwhile a U.S. small-cap index lagged its large-cap peer by a wide margin for the week, eroding small caps’ year-to-date outperformance. The Russell 2000 Index fell 0.6% for the week while its large-cap counterpart ended 1.26% higher.
Key SPX Technical Levels to Watch
Support near 7,420-30, 7,320-25, 7,235, and 7,040-50. A strong downside move might even violate 7,000 and reach the 6,750-6,800 zone. Resistance appears at 7,575-80 and 7,620. A break to new highs could accelerate to around 7,850.
In any case, as we always do at TheTechTrader.com, we will “Trade What We See, Not What We Think.”
— HARRY BOXER, THE TECHNICAL TRADER | www.thetechtrader.com
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