Given the strong market performance year-to-date, now is a suitable time to filter the noise and search for market signals. Whether the technology sector leading the stock market to the upside  is a signal of a trend change is a paramount question.

From the December 2022 report “Technology outlook for 2023,” the following passage provides context for the Technology sector gains thus far this year (emphasis added).

It is worth noting that January is known for technical bounces as tax loss selling abates. Regardless, the message of the market is not bullish… Technically speaking, the XLK remains in a downtrend.

The January-effect is a well-documented market regularity. As this was to be expected, the question now turns to whether the strong upward move year-to-date also contains a signal regarding a change in the primary trend.

The Stock Market

The following 2-year daily chart of the Technology Select Sector SPDR® Fund (NYSE:XLK) displays the current trend in the technology sector. Note that the orange horizontal line is the minimum price required to signal a possible trend change.

Technology Select Sector SPDR® Fund XLK 2-year daily chart.

Technology Select Sector SPDR® Fund XLK 2-year daily chart. Created by Brian Kapp using a chart from

Confirming the continuation of the primary downtrend, the 50-day moving average (gold line) is beneath the 200-day moving average (grey line). Importantly, the orange line also represents the neckline of a head and shoulders top from late 2021 to early 2022. The technology sector within the S&P 500 index remains in a bear market and is nearing what should be heavy resistance at the neckline.

The technology sector has the largest influence by far representing a quarter of the broad US market,  with the next nearest sector weight in the mid-teens. In fact, the technology top coincided with a head and shoulders top in the broad market indices, which was covered in my March 25, 2022 report, “SPY: The death cross and what you need to know.” This is how I summarized the situation in March 2022:

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