Investors should be well aware of how quickly markets change, but the last couple weeks have been even faster than usual, causing notable improvement in tech.
Investors should be well aware of how quickly markets change, but the last couple weeks have been even faster than usual. Near the end of last month, the Technology Select Sector SPDR fund (XLK) was within 4% of moving into a bear market while semiconductors were faring even worse. The VanEck Semiconductor ETF (SMH) fell as much as 25% from its highs, triggering four consecutive sell signals. Weaknesses across the technology sector resulted in it losing the top spot in DALI, falling behind both industrials and healthcare.
However, the group remained an overweight area, maintaining its position among the top three in DALI. Since then, the group has rebounded, with technology putting together one of its strongest weeks in recent years. XLK rose 11.5% over five trading days (7/29 to 8/5), which was the best one-week span for technology since the market rallied off the Tariff Tantrum bottom last year. As a result, there have been several notable relative strength developments. Even more encouragingly, recent movement has been driven by the majority of names in the sector, not just the largest constituents. The Invesco S&P Equal Weight Technology ETF (RSPT), representing the average technology stock, is up double digits off of its recent lows. So far in 2026, RSPT is outperforming XLK by around 12% (through 8/7), meaning that the technology sector has been held back by its largest names this year—the opposite of the last few years.
Since the start of this bull market on October 12th of 2022, XLK has gained a cumulative 222.5%. Despite that, the Bullish Percent for Technology (^BPECTECH) has been at an average of 38.7% over that span. More recently, the sector’s participation reading fell below 28% with the sell-off but has since reversed back into a column of Xs at levels around 45%. Historically, that’s been a constructive area for the sector, as XLK averages a 15.4% one-year return when trading in Xs between 40% and 60%.
Additionally, the rebound in semiconductor stocks has been even more notable. The VanEck Semiconductor ETF (SMH) recently moved back to a buy signal at $570, ending its streak of four consecutive sell signals. The ETF regained near-term market RS, moving back into a column of Xs versus the S&P 500 Equal Weight (SPXEWI). SMH now holds a solid fund score of 4.51, which is up 0.87 points from its lows during the last couple weeks. While the group now faces significant resistance until its previous all-time highs, the breakout is certainly encouraging, especially when considering the group’s participation readings.
The Bullish Percent for Semiconductors (^BPECSEMI) entered washout territory at 8% but has since exploded higher to levels above 50%, signaling that the majority of semi stocks are back on buy signals. Reversals from below 10% are typically one of the most bullish moves investors can see from our indicators, but does that extend to the semiconductors group? There have been 11 other reversals from below 8% since the inception of the SMH fund. While several of those instances occurred during the dot-com bubble and 2022, the typical performance following those instances has still been positive. SMH averaged a one-year return of 17.5% and a median return of 23%, highlighting the strong magnitude of upside seen during non-bear markets. The analog to the dot-com bubble is present, with an eventual bear market remaining a possibility, but the base scenario from historical instances suggests that technology and semiconductors have further room to run.
