Tech Rally: Too Far Or Early Stages?

In this week's video, we'll review the latest charts and data that will answer the question, the tech rally, has it gone too far? Are we still in the early stages? In both the May 1st and May 8th videos, we compared the present day to the popping of the Nasdaq bubble in the year 2000. And the charts that we used in those videos tended to be a little bit more conceptual in nature. We're going to cover the same topic now, but we're going to do so from a how do we use all this perspective. So, a little bit more tactical and a little bit less strategic. And since they have longer track records than ETFs, we're going to be using mutual funds. FSPTX, the Fidelity Select Technology Fund. Very similar with a high correlation to XLK, the tech sector ETF. And then VFINX is basically SPY in the Vanguard Mutual Fund world, the Vanguard Index Trust 500. From this low here in October of 1998, this is really the beginning of the blow-off phase of the Nasdaq bubble. This is a daily chart. Again, think XLK relative to SPY conceptually. We've got the 20-day moving average in blue all the way out to the 250-day moving average in black. Clients and regular viewers know this is a full-bore bullish look with blue the fastest moving average on top, black the slowest moving average on the bottom, prices above all the moving averages, and the slopes are up. And the look of tech stocks relative to the S& P 500 from this point in 1998 to the peak here in the year 2000 looked discernibly different from the look after the bubble started to pop. Ultimately, we move on the left side of the chart from a full bore bullish look to something over here that's very, very similar to a full bore bearish look, and that takes time. We morph from this look here to this look here. Thus, in the present day, if we saw anything like this period in here, concerns would increase. Conversely, if we see something more like this, concerns would dissipate. And if you know your stock market history, we've mentioned numerous times in the year 2000, the bear market really began in earnest in September of that year. So, in Q4 here of the year 2000, things really start to get ugly in the S& P 500, the Nasdaq, and as you can see, tech starts to underperform significantly relative to the S& P 500. 20-day moving average moves from the top of the stack to the bottom of the stack. We get a tight clustering look in here telling us that the trends on multiple time frames are converging. Market participants on all time frames are starting to realize and see the same things. It didn't matter whether you were trading the 20-day moving average or the 250-day moving average, there was concern and deterioration. So, it's probably fair to say before things got really, really ugly, this over here looks significantly different relative to this over here in Q1 of the year 2000. And we want to review this from two perspectives. Number one, if there's a major stock market peak like this peak in the year 2000 where the S& P 500, the Nasdaq, and this ratio didn't bottom until October of 2002. And we also want to look at periods of general underperformance like this period here in 2011. Same ratio, very similar to XLK relative to SPY. We have a very long period here of outperformance for tech. And then we morph into a similar concerning and bearish look. And tech stocks underperformed from this peak in 2011 down to this period here in 2012. And that's a long time. So, we want to understand something about this type of period and this type of period. This is a major bear market. This is more of a leadership shift here in 2011. I say that cuz that lasts into late 2012. It's noteworthy though, this is the beginning of a risk-off period in the S& P 500. It's a significant drawdown in the second half of 2011. And the market reverses in October. So, this is also a risk-off look.

We want to understand how to differentiate between this we can remain patient look and this look in here where action is most likely going to be necessary because when bubbles pop, it can be extremely painful. In this basic window, the Nasdaq Composite lost 77. 92% of its value. You heard that right. From this point here on March 9th of the year 2000, this is a performance chart to October 9th of 2002. The Nasdaq loses 77. So, all of this stuff is pretty important because if you plan to be a buy and hold investor, you have to understand that things like this happen in the stock market. They've happened before, they will most likely happen again. Talking about human greed and human fear. It was no picnic for the S& P 500 in this window either. Peak to trough, it lost over 50% of its value. As stated earlier, the present day looks more like the left side of this chart, try to be patient when it starts to morph into something more like this, we have some work to do to try to understand is this a leadership shift? Is this a correction within the context of an ongoing secular bull or is this potentially the early stages of a devastating drawdown period? And that's where the models come into play. They can help us understand the context of this peaking process here relative to this shift here. So this is 2009, tech leads till this peak in Q1 of 2011, then it underperforms for almost 2 years. And we really don't get serious leadership from a trend perspective until this low in 2016. So once again, we get a long period of outperformance where the magnitude and the duration of the outperformance is significant. This is a strong trend in favor of tech relative to the S& P 500. And if you know your stock market history, the S& P 500 does quite well from this low here in February of 2016 into Q1 of 2018. So once again, probably fair to say we have a full-bore bullish look here, something very similar if not full bore bullish. And then it starts to morph into something much more concerning. Look at the slopes of the moving averages. Look at price relative to the moving averages. We failed to hold the flattish 250-day moving average. And then we fall off the table here until the S& P 500 finds a low on Christmas Eve of 2018. You can see the slope of the trend off of this low in 2016. For the most part, that trend remained intact. This is kind of an overshoot look, back to trend. And we held. It's always good to understand what's happening on multiple time frames. So, this is a daily chart. So, when we're falling here, we want a reference point. And thus, it can be helpful to look at weekly charts. This is that same pullback here in 2018. You can see we come back to an upward sloping 200-week moving average in gold, and we hold. And we all know that secular bull markets tend to make a stand at or near an upward sloping 200-week moving average. It was also constructive that the ratio was able to clear the blue box in the bottom of the screen. And then it consolidated up near the top of that box, had a bullish breakout. And you can make an argument that this is a retest look here. It was constructive that we held above the top of this green box here. It ties into this peak in 2011. Moral of this story, this pullback here has reference points that you just don't have here. This is an area of potential support. Once you start to fall here, there's not much in the way of potential support. Now, let's walk forward from that Christmas Eve low to see what we can learn. S& P 500 bottoms here Christmas Eve 2018 and once again, we get a long period of a strong trend duration and magnitude favoring tech over the S& P 500. Still using the same mutual funds FSPTX

and VFINX again similar to XLK relative to SPY. For more bullish look and the market starts to look forward here as it gets concerned about inflation and eventually you can see things fall apart in January of 2022. This over here looks discernibly different relative to this period of outperformance. So we want to embrace this type of look and we want to pay closer attention if we see something like this. Let's step forward a little bit further into time. This chart ends on May 15th, 2023. This version goes till April of 2025. So we came up resistance here in 2021, resistance in a similar area here in 2025. This is somewhat of a failed breakout look. You can see once again the 20-day moving average, the fastest moving average moves from the top of the stack rapidly to the bottom of the stack. And ultimately the million-dollar question as we walk forward to May 14th, 2026. In the present day, do we look more like this over here or concerning look here in January of 2022? And all of this is relevant because tech is such a significant portion of the capitalization weighted S& P 500 index that it's very difficult to envision stocks in general doing well when tech's not doing well. So, the market is healthier when tech is leading. It's hard for the S& P 500 to make progress when tech is lagging. So, if we fast forward to May 14th, 2026, what we see over here, especially if we zoom in, we have blue, the fastest moving average on top, the 20-day moving average. Black, the slowest moving average is on the bottom. We have a tight clustering look with the moving averages on multiple time frames turning up. Price is above all the moving averages. It's not a clean full-bore bullish look, but by definition, it is. And we can say this confidently. This look here in May of 2026 really doesn't look anything like the exact same chart with the exact same moving averages in January of 2022. This is what the market looked like when it was concerned about inflation being a showstopper for the stock market. Blue, the fastest moving average is on the bottom of the stack. Black, up here, is on the top of the stack. It's almost the polar opposite of what we have in mid-May of 2026. This really doesn't look anything like this, nor any of this. In mid-May 2026, with blue the fastest moving average on top and black the slowest moving average on the bottom, really doesn't look anything like September of the year 2000, when the tech underperformance and the market itself started to accelerate to the downside. And look at the 20-day out to the 250-day tech relative to the S& P 500 really doesn't look anything like the concerning look that we had in Q4 of 2018. Nor does it look like the concerning look that we had in the second half of 2011 when tech underperformed and the S& P 500 struggled significantly. Your drawdown in 2011 is basically a bear market drawdown, 19% and change on a closing basis. So, if we go back to the title slide and we objectively answer this question based on the chart in front of us and forget the present day, pretend you're taking a multiple-choice test and you had to look at this chart, you didn't know what it was, you didn't know the context, you didn't have any money on the line, and you had two choices. This looks like the early stages of a bullish trend or B, bearish trend. You would choose A, the early stages of a bullish trend. You would be confident in your answer and you would move on to a harder question. Now, that doesn't predict anything. It's commentary about the chart in front of us. But this chart speaks to the net aggregated opinion of all market participants regarding all subjects on all time frames, just as this concerning look here in Q4 of the year 2000 is based on the net aggregate opinion of all market

participants regarding all subjects on all time frames. This is the wisdom of the crowd as the bubble is bursting. in mid-May 2026. And like last week, it's also relevant if we take this exact same chart and go way out. We all know the longer a market goes sideways, the bigger the move you can expect to get when you either get a bullish breakout or bearish breakdown. At the moment, this looks like a strong bullish breakout attempt. The longer we hold above this level here, the more relevant it becomes. But, we have a breakout from two periods of consolidation. This one from 2021 here to 2026, this one from the peak in the year 2000 to 2026. And it's fair to say this really doesn't look anything like this. How about a monthly cloud? This is the exact same ratio. Tech starts to lag here as the bubble is bursting. And we start to check a lot of bearish boxes on the monthly cloud rather rapidly. Price below blue. Blue drops below red. Price drops below the red span. We don't have any of that in the present day. In fact, we have a bullish look. Present day looks a lot more like this bullish turn in 2016, where blue goes above red. Price is above blue and red. The green span is above price. And price is above the cloud. Present day, blue is above red. The lagging span, the green span, is above price. Price is above a green and upward sloping cloud. The monthly cloud for this ratio is really the polar opposite of what it looked like in this period here. And it looks very, very similar to this period in here. And we all know that breakout attempts can fail. It's why we have the expression the longer above, the more relevant it becomes. We also know breakouts like to retest prior area of resistance. So, if we came back down to this dotted line at some point in the future near the rising cloud, that could act as potential support, that wouldn't be shocking. This is a monthly time frame. In the long-term breakout of the consolidation pattern going back to the year 2000, aligns with rather than contradicts the base case that we're in a secular bull market primarily driven by favorable demographics and getting a second tailwind from AI and productivity enhancements. How about a weekly time frame? S& P 500 peaks here March of the year 2000. The S& P eventually loses roughly 50% of its value. You can see we start to check bearish boxes pretty quickly on the tech S& P 500 ratio on the weekly cloud. Price drops below blue here. Price drops below red here. Blue Lagging span hits price here, drops below again here. And then you can see after that we stay below a declining red cloud out here. Doesn't really look anything like this period in here from 1999 into that blow-off top. So, if the present day the weekly chart started to look like this, concerns would increase. And there's a lot of concerns in the present day about inflation. So, if the present day starts to look like January of 2022, where basically the same thing has happened on the weekly cloud, price drops below blue, price drops below red, the red span and the blue span here are kissing and they're falling. That tends to be bearish. Eventually, blue drops below red here. That also leans bearish. The cloud flips from green to red and price drops below the cloud. This is a bear market where inflation concerns become a showstopper for stocks calendar year 2022. So, does mid-May 2026 look anything like January of 2022 or the peaking process in the year 2000? All three of the charts are weekly cloud charts. So, we take the 2022 chart and fast-forward to the present day, you can see we really don't have anything like that. We have blue on top of red, but it's

rising. That looks a lot different from January of 2022. The lagging span is above price. Price is above both the blue and red spans. Price is above the cloud. The cloud is green and the cloud is rising. This in mid-May 2026 really doesn't look anything like January of 2022, nor does it look anything like the year 2000 as things began to unravel and then they started to unravel rapidly. September of the year 2000, blue is below red. Price is below both blue and red. The lagging green span is below price and the forward cloud is flipping from green to red and it eventually starts to decline. If the present day weekly cloud on the right hand side of your screen starts to morph into something that looks more like the inflation-induced bear market period in 2022, then concerns would increase. But right now, this looks more like a bottoming process and a bullish turn similar to Q1 of 2023. Blue above red, green span above price, eventually the price gets above the cloud. This doesn't look like this. How about if we go out even further and look at the quarterly cloud? It's a 26-year period here. You can see we dropped like a stone as the bubble is bursting. Tech S& P 500 ratio in the year 2000 and 2001. In mid-May 2026, batting five for five on the quarterly cloud, including a long-term breakout that thus far is looking pretty convincing. A five for five favors tech relative to the S& P 500, and that's in stark contrast to the look as the bubble is bursting in the year 2000. As always, commentary in this week's video is based on the charts and data in front of us. If begin to shift in a material manner, then we have to be willing to reassess the probabilities, and if needed, adjust our portfolios. And we all know the only way that we can use all of this effectively and prudently see something like this morph into something concerning like this is if we had it in the next week and every week with that flexible, unbiased, and open mind. The material in this video has no regard to the specific investment objectives, financial situation, or particular needs of any viewer. This video is presented solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or any related financial instruments, nor should any of its content be taken as investment advice. Any opinions expressed in this video are subject to change without notice, and Chivaho Capital Management LLC or CCM is not under any obligation to update or keep current the information contained herein. CCM and its respective officers and associates or clients may have an interest in the securities or derivatives of any entities referred to in this material. CCM accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material. We recommend that you consult with a licensed and qualified professional before making any investment decision.