It was a good rebound. Between the close on July 15 and the close on July 23, the S&P 500 rallied 5.5%. That's quite a move for only six trading days. As it turns out, we learned on Thursday it may have been a little bit too much. The S&P 500 fell 2.31% -- a 42% dip in the gain.

Nonetheless, I think it was a good move for the bulls, putting an end to a terrible downtrend we suffered over the prior two months. More importantly, the rebound sent a few new sector leaders to the front of the line, and a few new laggards to the back of the line. Back to that in a second.

As for my bigger picture take, I'm personally bullish -- in the short-term -- with a caveat. As long as the market doesn't give back too much today or early next week, I think the new-found bullishness can be revived. We were very oversold, and have yet to reclaim all of those losses.

In the meantime though, I'm not necessarily looking for a lot of strength. Timing has a lot to do with it. Being the last day of the week and right in front of a weekend, I don't foresee a lot of people looking to dive into stocks after Thursday's beating. If it were Monday or Tuesday, maybe. But, adding in the risk of holding stocks over a weekend could be just enough to keep people away today.

The only thing the bulls really have going for them at this point is the size of Thursday's dip - we may see a dead cat bounce. If we can fully recover (or even just make a strong recovery effort), that may be enough to jump-start the rally again. I think this is the less of the two likely scenarios though.

Bear in mind, however, that we're almost back to the halfway point of the rally. If the S&P 500 falls under 1248 or so, that will be more than a 50% retracement, which isn't exactly inspiring. In other words, we can't afford to fall too much today. (However, and ironically, a massive blowout may set up a dead cat bounce for next week. We'll burn that bridge when we come to it though.)

Now, I didn't say any of this to really talk about the market. I want to see today's action before jumping to any conclusions.
The reason I want to talk about the size of the rally -- and the potential continuation of it -- was to highlight that fact that we're seeing some interesting sector rotation right now. If this rebound effort does have more gains to dole out, I'm looking for those sector leaders to remain in front, and for those laggards to remain in the back. As such, you may want to focus on the leaders, and perhaps steer away from (or even short) the laggards.

In any case, just take a look at the sector results over the last seven trading days. That time span includes all the rebound that started in the 16th, but also factors in Thursday's big dip. It doesn't include any data from today. I've also subtracted yesterday's results, just to give you some scope on how things were looking before the big selloff.

Recent Sector Performance


Two things come to mind for me. The first is, that's one heck of a different look from what we've seen over the last few months -- almost a diametrical opposite. The second thing is, those leaders and laggards are bull market leaders and laggards.

It may well be a case of he who falls the farthest bounces the most. If stocks continue to sink, we'll find out soon enough. If the market can stave off any major deterioration today and early next week -- enough to keep the rally intact -- I suspect we'll see these sectors maintain their relative position in the race. If so, I'll be looking to shed energy and materials, and focus on the top four performers -- transportation, financials, industrials, and cyclicals.

Price Headley is the founder and chief analyst of BigTrends.com.