The recent surge in U.S. stocks, driven by the AI narrative, has pushed major indices to new highs. However, the sustainability of this rally is increasingly questioned by institutional investors as several key technical indicators reach extreme levels. In a recent report, Jonathan Krinsky, Chief Market Technician at BTIG, highlighted that the daily RSI for the SPDR S&P 500 ETF Trust (SPY.US) climbed to 78 last Thursday, followed by a 1.2% plunge on Friday. Since 2003, there have been only six instances where SPY experienced a single-day drop exceeding 1% immediately after its RSI surpassed 75. In each case, the average return over the subsequent 5 to 40-day window was negative. More critically, five of those six instances were followed by peak-to-trough drawdowns of at least 7% in the following weeks, with the sole exception being a period of sideways consolidation in 2023.
Deterioration in market structure extends beyond the index level to key leading sectors. Semiconductors and artificial intelligence (AI) stocks, the core engines of the recent rally, suffered significant losses last Friday. The VanEck Semiconductor ETF (SMH.US) plummeted 3.8%, marking its largest single-day decline since March. Krinsky noted this movement confirms his view that semiconductor and AI stocks are more likely to "decline towards" the broader market rather than lifting lagging sectors higher.
Market breadth also presents a concerning signal. BTIG data shows that 70% of trading volume on the New York Stock Exchange last Friday was concentrated in declining stocks, the highest level since March. Concurrently, while the S&P 500 index recently traded 8.5% above its 50-day moving average, only 47% of its constituent stocks were above their own 50-day moving averages. Krinsky described this as "the most severe divergence on record."
The report also listed other pressure points: the 30-year U.S. Treasury yield has re-surpassed 5%; December crude oil futures are approaching cycle highs above $84; and the SPDR Select Sector Fund - Technology (XLK.US) now holds a record 37.5% weighting within the S&P 500 index, exceeding its peak during the dot-com bubble.
These technical pressure signals appear particularly sensitive in the current macro environment. Last week's U.S. inflation data exceeded expectations across the board: April PPI surged 6.0% year-over-year, with core PPI up 5.2%; April CPI rose 3.8% year-over-year, the largest increase since 2023. Consequently, Treasury yields climbed rapidly, with the 30-year yield briefly hitting 5.12%, its highest level since 2007, and the 10-year yield reaching 4.59%, a near one-year high.
Last Friday, all three major U.S. stock indices fell over 1%, with the Nasdaq Composite dropping 1.54%, ending a six-week winning streak. On Monday, U.S. stock futures extended the decline, with futures for the three major indices down approximately 0.5% each.
**Eerie Similarities to Historical Bubbles**
While the current AI-led rally is built on genuine industry trends and earnings growth, market performance data suggests speculative fervor has surpassed levels seen during history's most iconic bubble eras. Krinsky cited data showing the average gain for the top ten performers in the Nasdaq 100 over the past year was a staggering 784%. This not only exceeds the 559% average during 1999 but also surpasses the 622% gain in the year leading up to the market peak in March 2000.
Notably, this view is not isolated. Michael Burry, the hedge fund manager profiled in "The Big Short," has issued similar warnings, stating that gains in leading Nasdaq 100 stocks have exceeded the astonishing levels of the dot-com bubble.
In the year leading up to the 2000 peak, the Nasdaq's leading performers included MicroStrategy (now Strategy, MSTR.US), Qualcomm (QCOM.US), SanDisk (SNDK.US), Analog Devices (ADI.US), Lam Research (LRCX.US), Regeneron (REGN.US), Nvidia (NVDA.US), Cognizant (CTSH.US), Apple (AAPL.US), and Adobe (ADBE.US). Today's leading roster, while different—including SanDisk, Western Digital (WDC.US), Seagate (STX.US), Micron (MU.US), Intel (INTC.US), Lam Research, AMD (AMD.US), Warner Bros. Discovery (WBD.US), Marvell Technology (MRVL.US), and Applied Materials (AMAT.US)—echoes history in a disquieting way. SanDisk and Lam Research appear on both lists, while Strategy, though in a vastly different guise as a "Bitcoin play," also ranks near the top.
However, current data holds a nuance: while the average gain is higher, the median gain is actually lower than during the dot-com bubble—354% compared to 455% then. This indicates "the top of today's list is hotter, but the bottom support is thinner," with SanDisk's nearly 4000% surge contributing immense statistical weight. SanDisk's stock price soared an unprecedented 3960% from May 2025 to May 2026, far exceeding Qualcomm's peak return of 2620% during the dot-com bubble.
Amid the escalating AI bubble narrative, Wells Fargo analyst Ohsung Kwon publicly stated "AI is a bubble," yet advised investors "not to fight the tape" due to the sheer scale of AI capital expenditures in Q1 2026, which totaled $174 billion, up 72.8% year-over-year and accounting for 42% of U.S. GDP growth during the period. Bank of America strategist Michael Hartnett pointed out that the Philadelphia Semiconductor Index currently trades 62% above its 200-day moving average, surpassing the Nasdaq's 55% deviation level before the dot-com bubble burst.
**A Unique Opportunity Amid Diverging Signals: Krinsky Calls to "Buy Bonds Now"**
While warning of equity market risks, Krinsky also pointed investors toward an alternative path, suggesting the current environment is creating a significant tactical buying opportunity in bonds.
Krinsky explicitly stated in the report that now is the "time to buy duration," expecting the 10-year Treasury yield to fall toward 4% in the coming weeks, while the iShares 20+ Year Treasury Bond ETF (TLT.US) climbs to $90. This judgment is based on a notable inter-asset divergence: the S&P 500 has rallied over 10% from its recent low, and WTI crude has plunged 22% from its April 7 high, yet bonds have only seen a modest bounce from recent lows, with TLT still down more than 4% from late February levels. In other words, equity and commodity markets have already priced in significant adjustments, while the bond market has yet to catch up.
Krinsky outlined two potential scenarios for lower rates: either continued de-escalation in the Middle East, which would lower oil prices, boost risk assets, and lift bonds; or a prolonged escalation, where high energy prices eventually hurt the economy, slowing growth and also leading to lower rates. Bonds stand to benefit under either path.
Technically, BTIG notes the 10-year Treasury yield has "just begun to turn lower, with daily momentum turning negative," while TLT is forming a small basing pattern that could serve as a springboard for gains. Seasonally, interest rates often face upward pressure in April but "typically begin to decline noticeably entering mid-May."
However, Krinsky is not entirely bearish on equities. The report also notes that value stocks have shown their largest negative move relative to growth stocks in nearly 31 trading sessions, potentially setting the stage for a relative rebound in value. Additionally, the software sector continues to show resilience. The iShares Expanded Tech-Software Sector ETF (IGV.US) is at multi-month highs relative to the S&P 500, and BTIG expects it to fill a gap near $98.
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