EB Daily Market Report - Brief Update - Tuesday, August 18, 2026
I discuss PERSPECTIVE a lot when I talk about U.S. stocks. I believe the perspective is lacking among many traders and market pundits. It's easy to have a "how can I make money right now" attitude, but the truth is that after significant runs in the stock market, having patience can be just as important as trying to find the next winning trade - if not more important.
Since the March low, technology (XLK) has gained 45% to power the S&P 500 to a 21% advance. Those are great numbers if we were looking over a 2-year period. Instead, we're talking about less than 5 months. Here's a chart that shows the S&P 500's daily performance since March 30th in the top price panel, but also shows the price performance for the top sectors since that date:
One hallmark of secular bull markets is ROTATION. When we experience corrections and bear markets, money pours OUT of U.S. stocks. I find it quite comforting that U.S. stocks remain in uptrends during periods of consolidation and volatility. It's a signal of rotation, which helps to keep the bull market alive and kicking.
In the above chart, you can see that technology (XLK) actually falls from its June low to its July low, but the S&P 500 does not. The good news is that money rotating out of technology did not leave the market. Instead, it simply found a new home in financials, health care, and industrials. That's EXACTLY what we want to see when leadership takes a breather.
Since the latest bottom on July 29th, let's check out leadership once again:
The old leader, technology (XLK), regained its footing and was easily the best-performing sector to send the S&P 500 back to a new all-time high. Money also rotated into energy (XLE), consumer discretionary (XLY), and industrials (XLI). Note that none of these new leaders were defensive sectors. That's important, because that can send us a dire warning. We do not want to see defensive groups leading the S&P 500 to new highs, especially with a rising Volatility Index ($VIX). That was part of the 2022 recipe for a nasty cyclical bear market.
Currently, this latest move to all-time highs appears to be sustainable. Yes, we have September ahead of us and we know that can be a difficult month. But I'm not anticipating any significant weakness.
Semiconductors (SOXX), as always, will be a group to watch. We are currently in a key gap support zone. If we hold it, I see very little selling ahead in the S&P 500. If we fail to hold it, then we have to be a bit more open minded about further consolidation, or even selling, in the benchmark:
I've marked two blue arrows, one to highlight the bottom of gap support and the other to highlight the bottom of a potential relative channel. If we see both of these levels lost, I could see a difficult September in front of us. But if these both hold, I see minimal damage ahead.
It is noteworthy that the SOXX has moved back below its 20-day EMA, which is another reason why we don't want to lose the gap support zone highlighted above.
Happy trading!
Tom