The U.S. stock market isn’t far off its 2011 high even after the sell-off early this week, but that obscures the still-perilous nature of its technical condition. In fact, a look at the technical picture reveals that all of the major indices are within striking range of their 200-day moving averages. The market’s behavior around these levels could provide an important signal regarding second-half performance, and some important ETFs may offer a critical clue as to what could happen next.

The S&P 500 Index chart illustrates that equities have moved close to a potential danger zone. At its 1314 close on July 12, the index stood just 3% above its 200-day moving average (MA). This still leaves plenty of room on the downside, but it deserves attention now that the 50-day moving average has begun to turn lower. The last time the S&P 500 violated its 200-day, in May of last year, it was nearly four months before the index steadied and began its march to new highs.

The other major indices show a similar position as of July 12. While all four remain further above their 200-day moving averages than the S&P, they are also fairly close to a technical breakdown:

Even investors who are not inclined toward technical analysis should pay attention to developments regarding the 200-day moving average, since it is such a widely followed indicator. The impact of technical factors could be even more pronounced amid the slower trading volumes of July and August. Keep in mind, it is a close below the 200-day — not an intraday breach — that matters most as the signal for a breakdown.

In assessing the likelihood of a key technical event, it often helps to look at the market’s underlying sectors as a guide. For the purposes of this discussion, it’s useful to look at the SPDR select sector ETFs.

The table below shows the distance of each of the nine SPDR sector ETFs relative to their 200-day MAs. It should come as no surprise that the Financial Select Sector SPDR (NYSE: XLF) is in the worst technical shape of the nine. Extreme weakness in banks and brokers caused the XLF to break below its 200-day on the first day of June, and it has remained in bearish territory since. This, on its own, hasn’t been a notable indicator since the broader market is essentially flat since the XLF broke down.

Other ETFs might provide a better guide. Technology, industrials and materials — all of which are sensitive to global growth — have moved very close to their 200-day moving averages in the past few days. If these ETFs fail to hold, it is very likely they will take the broader market with them. Investors would therefore be wise to put Technology Select Sector SPDR (NYSE: XLK), Industrials Select Sector SPDR (NYSE: XLI) and Materials Select Sector SPDR (NYSE: XLB) on their watch lists and keep close track of these ETFs’ positions relative to their moving averages.

XLK, of course, is the most important since it is closer to its 200-day MA than any of the broader indices. Consider this the proverbial canary in the coal mine.

The purpose of this discussion is not to say that stocks are definitely going to break down, but to put readers on alert that another surprising piece of bad news could well drive the markets into bearish territory. If this occurs, investors should carefully reassess their risk exposure to protect against the possibility of a more sustained deterioration in stock prices.