While Monday’s (5/11) trading appeared muted for broader U.S. equity indices with the S&P 500 Index (SPX) up 19 basis points, technology continued its charge higher with the State Street Technology Select Sector SPDR ETF (XLK) gaining 1.3% and rallying to a new chart high at $178. Of the 28 trading days in the books so far in Q2 (3/31 – 5/11), XLK has been positive during 25 of those with an average return of 1.3% per day during positive trading days (average return of 1% including the three negative trading days) as the fund has gained more than 30%.

An examination under the hood of the individual holdings within XLK reveals that 29 out of 73 (or roughly 40%) have made new or matched all-time chart highs during the month of May, with 20 of those 29 improving on recent highs during Monday’s trading. Below is the list of XLK holdings that have reached new highs, organized by date. Among those individual stocks to push to new all-time highs during Monday’s (5/11) trading are NVIDIA (NVDA), Micron (MU), Advanced Micro Devices (AMD), Intel (INTC), and Cisco (CSCO).

On the trend chart, XLK reversed into a column of Xs to kick of Q2 in the lower $130s and has since maintained that column as the fund has rallied to new highs this week, extending further into overbought territory. Monday’s (5/11) Daily Equity Report covered the broader market’s recent run into overbought territory, noting that while currently in very overbought territory, the weekly OBOS readings haven’t gotten to rarified territory, just yet. For XLK though, the weekly overbought reading for the fund has reached its highest level ever with data going back to the beginning of 1999. Friday’s (5/8) trading solidified the highest weekly OBOS reading by the week’s end (when the readings become official) at 136%, while Monday’s trading brought a further increase to the weekly OBOS reading at 146%.

The continued push to new highs in recent weeks by XLK has brought technical improvements as well, with the market RS chart against the S&P 500 Equal Weight Index (SPXEWI) reversing back into Xs in the back half of April. With a fund score of 5.78 (out of 6), XLK scores higher than the average technology fund (4.33) on the Asset Class Group Scores page, lagging only semiconductor and smaller cap tech ETFs in terms of fund score.

With the extension into overbought territory prevalent on charts like XLK’s, investors will look for when and to what extent a pullback might persist. Ideally, pulling back, consolidating near highs, developing support near current trading levels, and a normalization of the 10-week trading band and weekly overbought/oversold reading provides a constructive setup for potentially entering into positions coming off recent highs. Tuesday’s action brought about a reversal into Os from recent highs to $172, but a further pullback to the lower $160 to upper $150 range to bring the fund into a more actionable range.  Prior resistance around $150 may be seen as initial support, while support at $128 has been in place since August of 2025.

The rise in equity prices over the last few years, despite some uncomfortable bumps in the road, has led the S&P 500 Index (SPX) to reach historically expensive levels. With data going back to mid-1999, the P/E over the last twelve months (LTM) for SPX is nearly 30. The other two times the LTM P/E was this high were mid-2021 and 1999. However, LTM P/E is backwards looking and doesn’t focus on investor expectations for future earnings growth. Expectations of AI-driven economic growth naturally push the next twelve month (NTM) P/E for SPX down to about 21. It is normal for LTM P/E to be above NTM P/E as markets usually price in some form of earnings growth over the next year. However, both LTM and NTM P/E for SPX are well above their historical averages since 1999 of 19.1 and 16.7, respectively. Furthermore, both metrics are near the top-end of their historical ranges as highlighted in the chart below.

While it is almost always the case that LTM P/E is greater than NTM P/E, there is rarely this big of a spread between the two. The average historical spread between LTM P/E and NTM P/E is just over two but is currently north of seven. Plainly, there are enormous expectations for earnings growth to justify current prices. The last two times the spread between LTM P/E and NTM P/E hit seven were in October 1999 and April 2021. October 1999 naturally draws parallels to today with tech-related optimism. April 2021, while showing even higher earnings expectations, was fueled by unprecedented fiscal and monetary support for the economy as policymakers attempted to deal with the fallout from the covid shutdown. Even with some historical precedent, two prior occurrences are not nearly enough to make well-founded predictions about the future. Of course, AI could impact the economy even more than what is currently priced in the market. However, we can say that the expectations are exceptionally high and there is little room for error if markets are to remain at current price levels.

With the caveat of a small sample size behind us, the forward returns for SPX when the spread between LTM P/E and NTM P/E hits seven are muted. Average one year and two year forward returns are 0.02% and -9.62%, respectively. Interestingly, returns over the next six months were strong with both prior instances gaining over 7%. While we won’t know the forward returns until they happen, the prior one-year and two-year returns leading up to the P/E spread rising above seven are very similar this time to 1999 and 2021. While we have only mentioned point-to-point forward returns, both prior periods had large drawdowns over the next two years. Following both October 1999 and April 2021, SPX entered a bear market both times if using the common 20% decline to define a bear market. Before anyone gets too despondent (or excited), we have a small sample size and no real relative strength changes to suggest weakness is developing. However, if the market is unable to meet the current lofty expectations, we could see a similar situation to the last two times they were this high.

Daily Option Ideas for May 12, 2026