The U.S. technology sector is in a state of historic overbought conditions, with market fear virtually disappearing. The sole concern for investors has shifted from "a market drop" to "missing out." Wall Street technical analysts warn that the current market action closely mirrors several historical extremes, with one of the most concerning parallels pointing to the deep correction exceeding 20% that occurred in 1998.
Jonathan Krinsky, Chief Technical Strategist at BTIG, notes that if this week closes at current levels, the S&P 500 Technology sector will post its strongest 10-week gain since records began in 1990, rallying 44.6%. Concurrently, the VIX's daily sentiment index hit 13 last night, its lowest level this year, indicating demand for downside protection has plummeted to extreme lows.
The Danger of Current Signals
The risk in the current signals lies not just in the magnitude of the gains, but also in a subtle structural shift that is emerging. While the overall technology sector continues to climb, the "Magnificent Seven" (Mag7) have collectively declined by 2.3% since mid-May, suggesting narrowing momentum from the previous leaders. The macroeconomic backdrop is also quietly turning: U.S. Treasury yields are rising, oil prices are climbing, and pressure from Japanese interest rates is re-emerging, yet the stock market is currently choosing to ignore these factors.
A History of Extreme Signals
Krinsky's research shows the S&P 500 Technology Sector Index (S5INFT) currently has an RSI reading of 82 and is trading 28% above its 200-day moving average. This combination of being "overbought and extremely extended" has only occurred during ten distinct periods since 1990.
Among these ten historical instances, some ended positively—May 1995 and July 1997 fall into this category. However, Krinsky points out that most other cases saw significant consolidation or pullbacks within the subsequent 40 trading days.
The most recent occurrence of this signal was in June 2024, preceded by August 2020, and earlier, December 1999—the latter being just before the ultimate bursting of the dot-com bubble.
The Netscape Analogy: A Pointer to July 1998
There is extensive discussion comparing the current AI bull market to the internet boom of the 1990s. A common reference point is that the November 2022 launch of ChatGPT corresponds to the December 1994 launch of the Netscape browser.
Following this timeline analogy, the current moment corresponds precisely to July 1998. Krinsky highlights that July 1998 marked the starting point for the most severe correction within his "overbought and extended" study—the S5INFT subsequently fell over 20%, not bottoming until October 1998.
This analogy provides a concrete risk framework for the current market: not an immediate bubble burst, but a significant mid-term correction following a period of extreme extension.
Leadership Shifts and Breadth Concerns
Despite strong overall sector performance, a noteworthy divergence is appearing within its structure. Since mid-May, the S5INFT has risen approximately 7%, while the Mag7 as a group has fallen 2.3%.
This indicates the recent tech rally is not being driven by the previous core leading stocks, but rather by a broader set of technology constituents taking up the mantle. While this "hand-off" can be interpreted as broadening market participation in the short term, against a backdrop of historically extreme technical indicators, weakness in the former leaders could also be an early sign of waning momentum.
A Shifting Macro Backdrop
Simultaneously, the macroeconomic environment that has underpinned this rally is quietly tightening. U.S. Treasury yields are rebounding, oil prices continue their ascent, and uncertainty around Japanese interest rate policy is reigniting chain-reaction pressures in global rates.
The stock market currently remains immune to these signals, but historical experience suggests that higher interest rates ultimately tend to exert substantial pressure on valuations. The current market sentiment structure—with the VIX sentiment index at a yearly low, option skew narrowing, and speculative demand continuing to pour in—means investors are abandoning downside protection en masse to bet entirely on further gains.
As Krinsky summarizes: There is no real fear left in the market, only the Fear Of Missing Out.
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