The Technology Sector (XLK) continues to dominate and drive the rally, but fewer and fewer stocks within the sector are participating in the rally. We know this because our Silver Cross Index (SCI), which shows the percent of stocks in the Technology Sector with Silver Cross BUY Signals (20-day EMA is above the 50-day EMA), is only at 54.60%. Almost half of the stocks are not on BUY Signals.
Further, looking at the seven years of data we have on the SCI (chart below), we were unable to find another case where XLK was making all-time highs with a Silver Cross Index reading so low that didn’t lead to price weakness. Of course, we owe this dislocation to the magic of cap-weighting. While fewer and fewer Technology stocks are participating in the rally, the mega-cap stocks are the ones making new highs, and driving up the price of every price index of which they are a component. The numerous negative divergences we can see are telling us that this probably won’t continue for long.
Conclusion: Participation within the Technology Sector has been fading since the beginning of the year. Mega-cap stocks are keeping prices elevated for now, but that probably won’t last.
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