By Blane Markham, Markham Trading
What a difference one week can make.
In recent weeks, market internals remained remarkably resilient even as single-stock volatility surged. That underlying strength allowed equities to absorb profit-taking, digest gains, and work through a necessary deleveraging process without breaking the broader uptrend.
Much of that adjustment happened through rotation. Capital moved out of many of the first half’s biggest winners and into previously lagging areas of the market, helping keep the broader bull market intact even as momentum cooled.
Last week, however, that resilience faced a serious test.
The S&P 500 moved dangerously close to a technical breakdown, while the Nasdaq briefly entered correction territory. Yet critical support levels held. Positive geopolitical developments, combined with a major deleveraging event that helped reset market positioning, gave buyers an opening.
Stocks responded aggressively.
The major indexes quickly found a bottom and launched into a powerful rally, ultimately pushing to consecutive new all-time highs.
A Major Technical Breakout
The breakout is an important bullish development as we move through the second half of the year.
Since May, the S&P 500 had been trapped inside a relatively tight consolidation range. The index continued forming constructive higher lows, but repeated attempts to push through resistance near the 7,575 level failed.
That changed this week.
The S&P 500 decisively broke through that resistance, and so far, those gains have held. A successful breakout from a multi-month consolidation can often signal that buyers have regained control and that the market may be ready for its next leg higher.
Even more encouraging is what’s happening beneath the surface.
Market Breadth Remains Strong
This does not appear to be a rally driven by only a handful of mega-cap stocks.
The equal-weight S&P 500 has also reached fresh record highs, suggesting that participation is broadening across the market.
At the same time, approximately 72% of S&P 500 constituents are trading above their 200-day moving averages.
That is an important measure of market health.
When a large percentage of stocks are participating in an advance, the rally tends to have a stronger foundation than one supported by only a few heavily weighted companies.
For now, the internal picture continues to suggest that the longer-term uptrend remains healthy and structurally intact.
What Could Drive the Next Move Higher?
Corporate earnings have provided an important foundation for the current advance.
The next potential catalyst may come from the macroeconomic side.
Energy prices, Treasury yields, and borrowing costs remain closely connected. If energy markets continue to ease, that could help reduce inflationary pressure and potentially pull Treasury yields lower.
Lower yields would ease financial conditions and could provide another significant tailwind for equities.
That would be particularly important for growth-oriented sectors, which tend to be more sensitive to changes in interest rates.
Where We See Opportunity
With the market regaining its footing, several areas currently stand out from a risk/reward perspective.
We continue to see attractive opportunities developing in:
Financials, Technology, Biotech, and selective Energy names.
We also continue to favor the equal-weight S&P 500 trade. As long as market breadth remains strong and participation continues expanding, equal-weight strategies may offer an attractive way to participate in the broader advance without relying exclusively on the largest mega-cap names.
One Market Idea We’re Watching: Biotech
One area that has become increasingly interesting is Biotechnology.
The SPDR S&P Biotech ETF (XBI) provides broad exposure to the biotech sector and is one of the charts currently on our radar.
Biotech can be volatile, but improving market breadth and greater participation among previously lagging sectors could create attractive opportunities if momentum continues to build.
Chart: XBI Biotech ETF
As always, the key will be whether price action confirms the opportunity.
The Bottom Line
The market faced an important test—and passed it.
After briefly threatening a technical breakdown, stocks found support, reset positioning, and surged to new highs. More importantly, the strength is being confirmed by broad participation beneath the surface.
Strong earnings, healthy market breadth, and the possibility of lower Treasury yields could provide additional support in the weeks ahead.
For now, the evidence continues to favor the bulls.
But after such a sharp move, traders should remain selective, focus on sectors showing genuine relative strength, and watch closely to see whether this breakout can continue to hold.