Buy the tech comeback or take profits? Katie Stockton uses charts to find an answer
Technology stocks are high-beta in nature, meaning they tend to lead the market on the upside and the downside, outperforming when the market is strong and underperforming when the market is weak. Given their tendency to lead the market (in both directions) and their 30% weighting in the S & P 500 Index (SPX) , it is important to have an understanding of where the technology sector stands from a technical perspective. Starting with a monthly bar chart, it is evident the Technology Select Sector SPDR has a secular uptrend in place above the rising monthly cloud model. Within that context, long-term momentum has weakened notably per the monthly MACD, which saw a bearish crossover at the end of March. The "sell" signal is the first since early 2022, and it has implications for at least 6 months of corrective price action, suggesting a cyclical bear market has taken hold. While the technology sector has technically entered a bear cycle, we ultimately expect secular bull to regain hold, likely sometime in 2026. Recently, XLK has rebounded strongly off the April low, with today's gap higher allowing the ETF to clear its 200-day moving average (MA): The breakout extends the rally in a near-term positive development, but the deterioration on the monthly chart is an overhang that suggests the rally may lose momentum abruptly. There is an area of supply on the chart in the $228-$241 zone, where XLK traded in a narrow range from early December through much of February. This is a natural place for the rally to stall, leaving former highs intact. As previously mentioned, technology stocks have a tendency to exhibit upside leadership during rallies and downside leadership during downdrafts. The latest upturn in the ratio of XLK to the SPX reflects outperformance while the market has rebounded. Preceding the upturn, the ratio saw a significant downdraft in Q1 that resulted in a breakdown, indicating a bearish shift in XLK's relative strength trend. This makes the current phase of outperformance appear counter-trend in nature, such that it is likely to be short-lived from here. Once there are signs that the relief rally in the major indices is maturing, we would be quick to reduce exposure to high-beta technology stocks. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here . DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . 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