How Tech Just Slammed The Door On Bears

Just when bears looked ready to turn the tide for good, bulls stepped in. They reminded everyone why the trend is your friend.

The Nasdaq outperformed for the fourth week in a row. Last week, it also hit its first all-time high since June.

Bears had been leaning on rising rates, geopolitical headlines, and weak market breadth to make their case. Tech (XLK) ran straight through all three worries.

Tech now leads on three of the four timeframes I track. That kind of leadership tells me bulls are in a position to follow through this week.

A rate hike cycle usually scares people out of growth stocks. History shows it can fuel them instead, and I’ve lined up three signals that will tell us whether bulls keep the ball this week.

The leaderboard lays the groundwork.

Growth Storms Back With a Vengeance

Tech owns the 1-week, 30-day, and 1-year slots. Energy only holds on to the year-to-date spot.

Tech just reclaimed the 1-year slot, too. The longer-term leadership picture has swung back toward growth.

Leadership like this carries more weight in today’s market than it would have a few years ago. We’re closing in on the fourth anniversary of the bull market from the October 2022 lows, and we’re now in a new rate hike cycle.

A rate hike cycle means the Fed is raising interest rates. The Fed hikes when the economy runs hot and inflation needs cooling.

A hot economy spreads the gains around. Energy and other economically sensitive groups can take turns leading without breaking the bull market.

That rotation gives the tape more leeway. Growth doesn’t have to lead week in, week out for the bull trend to stay intact.

It also raises the stakes when growth does lead. Tech outperforming while rates climb tells me buyers want growth badly enough to pay up for it.

We’ve seen this before. The Fed started raising rates in June 1999, and the Nasdaq nearly doubled before peaking in March 2000.

That run ended badly. Anyone who sat it out still missed a near-double in the Nasdaq, and parabolic moves like that one often occur during rate hike cycles.

The Script Just Flipped

Market breadth measures how many individual stocks join a move. Strong breadth means the average stock rises alongside the biggest names.

For several months, mega-cap tech stopped leading the market higher. Hardly anyone seemed to care.

Breadth strengthened during that stretch instead. Plenty of individual stocks pushed higher while the indices stayed lackluster.

Now the script has flipped. The market-moving stocks are strong, while the average stock sits down in the doldrums.

The indices are at or near new highs anyway.

Bears have grabbed onto that weak breadth as proof the rally is running on fumes. I read it the other way.

The mega-caps carry the most weight in the indices. They’re doing the heavy lifting with conviction, and that tells me this upside move is just getting started.

Three Signals for Follow-Through

I think it’s very irresponsible to sleep on tech here. These are the signals I’m watching to confirm bulls keep control this week:

• Tech’s weekly leadership. As long as XLK holds the 1-week slot, bulls stay in control. A week where growth drops out of the lead would be my first cue to tighten up.

• The Nasdaq’s new high. The index just cleared its June peak. Holding above it keeps the breakout intact.

• Energy’s year-to-date lead. Tech already took back the 1-year slot. Continued outperformance would chip away at energy’s final stronghold.

If all three hold, I expect the indices to keep grinding higher. If the first one breaks, I’ll start playing defense.

You can fight the tape at your own peril. You can also respect the trend and let the leaderboard decide when to get cautious instead of the headlines.