Whether you’ve had a productive year investing in 2026 depends almost entirely on whether you own energy and technology stocks. Technology fund XLK is up 23% YTD, while energy fund XLE is up 33.8%. The next closest sector after them, Real Estate (XLRE), is more than 13% behind tech, with a barely double-digit return of 10.1%. The outperformance of these two sectors has led to a notable uptick in relative strength. However, as the saying goes, the taller they are, the harder they fall. While both sectors display significant long-term strength, there is at least one major argument against each group.

Energy has been a major beneficiary of rising crude oil prices this year, with the sector climbing to first place in DALI with a signal count of 240. Looking at XLE, it holds an extremely strong fund score of 5.65 after breaking out earlier this year. While the sector pulled back in April, it completed a bullish catapult and regained near-term market relative strength versus SPXEWI over the last week. However, energy typically moves in conjunction with oil, and a resolution of the Iran conflict could cause a sizable drop in prices, which would be a significant blow to the sector. Conversely, escalation could drive prices even higher, serving as an additional tailwind. Either way, uncertainty surrounding conflict will likely lead to higher volatility in the sector, but its relative strength is holding up for now.

Technology has been the other major leader, but despite its strength, many investors remain concerned. Technology currently holds the second spot in DALI with an impressive signal count of 226. The sector has rallied sharply from its March lows, leaving XLK on a steep column of Xs before finding support at $172. It now has a near-perfect fund score of 5.79 but remains heavily overbought, trading above the top of its 10-week trading band. Despite the sector’s long-term strength, it wouldn’t be surprising to see the group cool off or pull back over the next month.

Despite concerns about both sectors, each continues to exhibit historic levels of long-term strength. Both sectors currently have over 225 signals within DALI, and there’s only been a seventeen instances in which one sector has held that much strength, let alone two. In order for a sector reach that many signals, there has to be a major underlying theme driving the move, and previous instances can help indicate whether those trends are likely to persist or fade.

Interestingly, five of those occasions have come from tech while four have come from energy. Energy is the least correlated sector to the broader market, and its performance is often more driven by oil prices than by equities, making it less impacted during broader downturns. As a result, it can rise to the top from either a sharp increase in oil prices, weakness within other equities, or both. Previous instances of extreme energy leadership have occurred around bearish periods, with the sector averaging a 20% decline over the following year after first reaching 225 signals, while the broader market performed slightly better. However, this environment is unique in that technology is right behind energy. In other bearish periods, defensive or commodity-linked sectors held second place, suggesting that the current environment may be driven more by oil strength than by equity weakness, similar to 2005.

Meanwhile, technology tends to deliver the most upside in rising markets, so tech-driven leadership is typically a sign of market strength. The other four instances of extreme tech leadership support this view, with XLK averaging a strong one-year return of 20%.  Additionally, leadership from other risk-on sectors such as consumer discretionary and communication services resulted in similarly strong performances, exceeding double-digit gains over the following While current market leadership may raise some concerns, there are always reasons for caution, and relative strength continues to support the leadership of the two sectors. With technology in the driver’s seat, concerns associated with past energy-led environments may largely be set aside, especially as the broader domestic equities market remains strong. 

Memorial Day weekend is upon us, and as in summers past, you will undoubtedly be frequenting several backyard BBQs, both this weekend and in the coming months. If your experiences have been anything like ours, you may have found that these parties can give some very helpful insight on investor sentiment. We have discussed the idea of the "Cocktail Party Bullish Percent” indicator in the past, as a way to gauge the general sentiment of your clients and the public about the market. So, in honor of Memorial Day, we wanted to present you with the cousin of the "Cocktail Party Bullish Percent," the "Backyard BBQ Bullish Percent" indicator. Keep it in the back of your mind as you head to any Memorial Day celebrations this weekend. Our prediction is that you will find yourself somewhere in the middle for most interactions.

Friends, family, and potential clients you see this weekend will also undoubtedly be curious about your take on the market, so we’ve included some notable recent developments below.

• While US stocks have rebounded from their first quarter swoon and notched several record highs over the last month, international equities still hold the top spot in the DALI sector rankings. The iShares MSCI Emerging Markets ETF (EEM) has outpaced the S&P 500 (SPX) by more than 10% year-to-date (through 5/20) with gains of 19.65% and 8.7%, respectively.
• Geopolitical uncertainty has helped to keep energy at the top of the DALI domestic equity sector rankings for the last two months. Technology, which has been perhaps the most consistent area of relative strength in domestic equities over the last decade, has rebounded from a Q1 slump and now sits in second place.
• The futures market is currently pricing in about a 54% chance that the Fed will raise interest rates this year. Earlier this year, the market had been expecting easing from the Fed but concerns about rising energy prices and inflation have shifted the narrative. Long-term US Treasury yields are sitting near multi-year highs as the 30-year yield index (TYX) hit 5.15% last week.
• Commodities have handily outpaced stocks this year as the S&P GSCI Commodity Index (SPGSCI) is up more than 35% year-to-date (through 5/20). But it has been far from smooth sailing as there has been extreme volatility in precious metals and energy contracts. There has been a lack of sustained leadership in commodities since precious metals precipitous drop earlier this year. Agriculture (cocoa), energy (gasoline), and metals (copper) are each currently represented in the top three in the NDW continuous commodity matrix.
• So far, it has been a banner year for momentum as the RS Spread Index (RSSPREAD), which measures the performance spread between high momentum stocks and laggards, currently sits at an all-time high, as we discussed last week.

The option suggestions featured here are pulled from the NDW Options Ideas tool. These are just a sample of the ideas that can be found there. The Options Idea tool contains numerous additional income and speculative plays. It also offers relative strength-based screens targeting the highest (and lowest) relative strength stocks and ETFs that have recently moved counter to their longer-term trend. To access or subscribe to the Options Ideas tool click here.

Call:

Altria Group (MO) Sept 18 $72.5 Call

Addition Data: 

Bid/Ask Spread: 4.60%

Delta: 62.08

Gamma: 4.52

Implied Volatility: 25.19%

Days Until Expiry: 120 Days

Next Earnings Date: 7/30/2026

Put:

3M Company (MMM) Aug 21 $155 Put

Addition Data: 

Bid/Ask Spread: 9.42%

Delta: -49.77

Gamma: 1.74

Implied Volatility: 28.69%

Days Until Expiry: 92 Days

Next Earnings Date: 7/21/2026

Income (Covered Call)

Alphabet Inc. (GOOG) Jun 18 $407.5 Covered Call

Addition Data: 

Bid/Ask Spread: 7.61%

Delta: 74.46

Gamma: -0.99

Implied Volatility: 29.54%

Days Until Expiry: 28 Days

Next Earnings Date: 7/23/2026