Technology stocks collapsing and technology stocks consolidating are two very different environments.
Right now, the market is reminding us of that distinction.
Yes, the S&P 500 Large-Cap Technology Index is down about 2% this year and roughly 7% since late October.
On the surface, that sounds like deterioration.
But zoom out and you’ll see something else. Tech is still trading in the same range it’s been carving out since September.
That’s not a breakdown. That’s a pause.
And while headlines focus on what large-cap tech is not doing, the broader market continues to do something constructive.
The NYSE Advance-Decline Line just closed at an all-time high. The S&P 500 Advance-Decline Line is pressing toward one as well.
This is not what market tops look like.
A sideways trend in technology is digestion. A decisive move lower would be damage.
Those are two different signals, and investors who confuse them tend to make expensive decisions.
So before we jump to conclusions about “tech being a problem,” let’s break down what’s actually happening beneath the surface.
Because once you separate large-cap tech from everything else, the story gets a lot more interesting.
When Seven Stocks Take a Coffee Break
To understand what’s really happening, we need to be precise.
It’s not “technology” that’s struggling. It’s specifically large-cap technology.
Small-cap tech, as measured by the S&P 600 Small-Cap Technology Index, keeps printing new all-time highs.
The mid-cap version is doing the same thing. Even the equally weighted large-cap tech index is at all time highs.
That isn’t broad-based weakness in the sector. That’s strength.
The problem, if you want to call it that, is concentration.
The stocks that dominate the cap-weighted S&P 500 are the mega-cap names. When they stall, the index stalls.
And that’s exactly what’s happened.
As soon as the large-cap tech stopped trending higher, the S&P 500 shifted from advancing to grinding sideways to lower:
That’s weight, not widespread deterioration.
Now look at large-cap tech relative to the S&P 500. It appears to be rolling over. If you squint, you can convince yourself a massive top is forming.
But markets trend. They spend far more time consolidating within trends than reversing them.
The higher-probability outcome is that this relative weakness represents the lower end of a range, not the beginning of a structural breakdown.
If you’re an index investor, that distinction matters.
And before we decide which outcome is more likely, we need to weigh the rest of the evidence.
Weighing All the Evidence
Let’s be clear: Large-cap technology matters. A lot.
If that five-month consolidation resolves lower and turns into a real breakdown, that’s not a minor event.
That’s trillions of dollars pressing on the index.
The so-called Magnificent 7 alone represents roughly $20 trillion in market cap. When money that big moves, everything feels it.
So, instead of guessing, we weigh the evidence.
If tech were truly rolling over, we’d expect to see cracks everywhere.
We’d expect leadership groups to deteriorate. We’d expect risk appetite inside the sector to fade.
But that’s not what’s happening.
Semiconductors are hitting new all-time highs relative to the S&P 500. On an equally weighted basis, semiconductors are at all-time highs outright.
Small-cap tech is at all-time highs. Mid-cap tech is at all-time highs.
Even the equally weighted large-cap tech index, already up more than 3.5% this year, is at all-time highs.
Small-cap tech alone is up more than 9% year to date.
Does that look like investors running away from technology?
It looks like the opposite. It looks like rotation and accumulation, not liquidation.
Could large-cap tech still break down and change the tone of the entire market? Of course. We stay open-minded. We keep it on the radar.
But when I line up the evidence today, the weight does not point to a tech collapse.
It points to digestion within an ongoing uptrend.
And here’s the part that makes it even more interesting.
This morning, the latest data from the American Association of Individual Investors showed more bears than bulls for the first time since Thanksgiving.
Stocks are near highs. Breadth is at highs. Leadership is expanding.
And individual investors are getting more bearish.
I think everybody’s wrong.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs