Tech continues to be unstoppable.
Just how unstoppable? Over the last 5 years, the Information Technology sector has risen more than 200%, 2x the return of the S&P 500 index. It goes even further than that, though. Tech’s dominance has been so extreme that every other sector has lagged the benchmark. 10 out of the 11 sectors are below ‘average’.
The run has helped the Tech sector completely erase the underperformance from the peak of the dotcom bubble. It took more than 20 years, but Tech is now setting new all-time highs compared to the rest of the market:
It hasn’t been just a handful of stocks driving all the gains, either, despite the popular narratives out there. The vast majority of Tech stocks remain in technical uptrends. 84% of the sector’s constituents are above their 50-day moving average and 91% are above their 200-day. Only the Financials sector shows stronger breadth characteristics.
Of course, stocks don’t go up in straight lines - not in perpetuity. And if Tech is going to run into trouble, this is a pretty logical place to do so.
The S&P 500 Information Technology sector index just hit the 161.8% retracement from the 2022 bear market decline. At the same time, RSI momentum is failing to confirm the latest move higher.
We’re seeing the same bearish momentum divergence when we look at Tech compared to the rest of the S&P 500.
To be clear, we’re not predicting a Tech sector crash. This is a bull market, and betting on lower prices during bull markets is a recipe for disaster. The more likely outcome in our opinion is consolidation for Tech while other areas of the market step in and take a leadership role. But before that happens, we need to see some confirmation.
This is the chart to watch. The Russell 1000 Growth vs. Russell 1000 Value ratio is backtesting the neckline from a 3.5 year breakout. If this becomes a failed breakout for growth stocks relative to value, we might be sitting here 9 months from now talking about how the value-oriented Financials and Industrials were the leaders in 2024.
But if we see this support level hold instead, it’ll be because Tech continues to be a leader.
Digging Deeper
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