The indices ended the week with a sharp sell-off, potentially marking the beginning of a broader pullback phase. Both the S&P 500 and Nasdaq spent most of the week consolidating sideways before attempting to rally midweek. However, Friday’s selling pressure completely erased those gains and shifted short-term momentum lower.
Despite the late-week weakness, both indices remain above the 10-day moving average and continue to trade within strong broader uptrends.
Small caps continue to lag relative to large-cap indices. The Russell 2000 (IWM) spent most of the week consolidating sideways before selling off more aggressively on Friday. Unlike the S&P 500 and Nasdaq, IWM failed to produce any meaningful midweek rally attempt and is now finding support around the 21-day moving average.
Themes in Play
SMH (Semiconductors) – Sold off alongside the broader market on Friday and is currently testing support around the 10-day moving average. The trend remains extremely strong overall, though given the magnitude of the recent move, a deeper pullback or period of consolidation would not be surprising. At the same time, strong trends can often remain extended longer than expected. Watching price action around the 10- and 21-day moving averages to gauge whether this resolves through continuation or broader consolidation.
IGV (Software) – Software has gradually shown improving relative strength over recent weeks, and Friday’s price action may signal the early stages of sector rotation. If semiconductors begin to cool off, software/cloud/cybersecurity could emerge as the next area of leadership. Looking for continued follow-through.
CLOU (Cloud Computing) – Showed notable relative strength on Friday, bouncing constructively off the 10-day moving average while the broader market sold off. Looking for continuation if relative strength persists.
HACK (Cybersecurity) – Continued to show strength after briefly testing the 10-day moving average earlier in the week. Currently approaching all-time highs and remains one of the stronger areas within software.
IBLC (Blockchain) – Experienced a sharp sell-off on Friday but still appears structurally constructive overall. Monitoring whether price can continue to hold around the 10- and 21-day moving averages.
GOLD – Pulled back this week but remains within a longer-term consolidation structure with tightening price action. Ideally looking for a higher low formation and eventual retest of resistance, though this may take time to develop.
REMX / NLR / Retail – These areas have shown notably weaker price action, with several breaking down from prior structures. The weakness across multiple sectors could be an early warning sign of deteriorating breadth beneath the surface of the broader rally.
Key Observations
While the broader uptrend remains firmly intact, Friday’s sell-off brought the clearest signs of profit-taking we’ve seen in several weeks, with weakness impacting nearly all sectors.
In addition, we are beginning to see deterioration in price action beneath the surface, particularly in weaker themes and lagging sectors. This does not currently suggest outright bearish conditions, but it does indicate that the rally may be entering a phase where selectivity becomes increasingly important.
Strong trends rarely move straight up indefinitely, and some degree of consolidation or pullback would be both healthy and expected after the recent momentum-driven advance.
At this stage, I would not be surprised to see either:
- continued short-term selling pressure, or
- a broader sideways consolidation phase before the next directional move develops.
Focus for the Week
This week I will be focused on:
- Monitoring for continued relative strength in software, cloud, and cybersecurity
- Tracking semiconductor price action around the 10- and 21-day moving averages
- Watching whether weakness in lagging sectors begins to spread into broader market leadership