5-28-26 Tech Rally Risk Rising | Before the Bell

Added: 2026-05-31

[00:00:00]But this is one of those areas when you see this type of advance, this kind of vertical move, these vertical moves always without exception eventually break and reverse. This is this cannot remain this case for a long time. And again, this is eventually going to reverse itself. But that does kind of bring us to a little bit of this morning, what you need to know before the belt. So let's start with the S&P 500 itself. um because this is one of the areas as as we've talked about lately, it's doing fine. Nothing to worry about, right? But again, as we as we said, this is really being driven by one primary sector, which is technology, which is again doing just fine, but uh uh that but it's getting, you know, very narrow in terms of the overall market and and when we start to look at this.

[00:00:48]But this is, you know, again, we've looked at this short-term chart here recently. Nothing really much to worry about, you know, setting new new all-time highs right now. You know, again, just from a fund, you know, just from a technical view, the markets are doing fine. Nothing really to be overly concerned about. Yes, we're overbought here a bit. Um, that's been the case here for for a bit. Uh, markets can remain overbought for a while, particularly when you have a lot of momentum behind them. But once we start to step back out, let let's look at this in in terms of a monthly basis because once you start to step back a bit, your your picture becomes a little bit clearer about kind of where things are and kind of what's happening in the markets. And you know, so this is a long this is a monthly chart of the S&P 500.

[00:01:30]Now, we're going to talk about semiconductors in a second, so hang on for me. But this is a long-term chart.

[00:01:35]This is a monthly chart of the S&P going back. And you can see how big these deviations have become. So, we talked about on Monday, we wrote the article on Monday, if you haven't read it yet, it's it's on the website right now talking about why a 20% correction would not be a bare market. A 20% correction would not would not break this upward trend in the markets. So, there's a there's a lot of potential downside risk, but you're going to have to have something that changes the entire dynamic of forward earnings expectations. Something will have to happen, credit related event, financial related event, etc. that is going to break the back of these forward estimates in terms of the growth rate expected out of these. Now the but the one thing is the acceleration of the markets over the last two months. This is a bit abnormal. We don't normally see going back you know you know going back to 2017 you don't normally see an acceleration in the markets like this.

[00:02:27]This is this is a bit abnormal. Again that's not that's not a huge red flag.

[00:02:31]It's just something that you need to be paying attention to because this is stretching that deviation. This acceleration is ex is stretching that deviation from moving averages. And eventually the markets are going to come back and retest moving averages as they do over time. That's just a function. We can stretch this back even further. So this is a 20-year chart. And you can see that regularly markets retrace back to their moving averages. In fact, this blue line, which is the 50-month moving average, is just a running trend line for the bottom of the markets really since 2009. The market regularly kind of retests that that kind of blue line, that 50-month moving average has been a really good support line. But you can see how big this deviation is currently from that moving average. So, there is a very big potential at some point for a reversal in the markets. But whatever causes that is going to be a different story. But again, you can also see this acceleration over the last couple of months is very different than what we've seen kind of previously over the last 20 years. So again, the acceleration, the speed of the movement is the one thing to kind of be paying attention to. Now, talking about that for a second, let's flip this over and look at this exact same 20-year chart and look at semiconductors. So, this is the semiconductor index going back 20 years.

[00:03:46]And if you can't see a what's called a parabolic advance in a market, uh this is what one looks like.

[00:03:55]And you've heard about these parabolic moves in stocks before. This is very this is a parabolic advance. And again, you go back and look at the last 20 years. We've had, you know, we've had periods of time where we've had semiconductor shortages. We've had demand for semiconductors. All this the same story we have today has existed previously. But we have not seen this type of speculative fervor within an index you know previously in history particularly semiconductors themselves again the deviations on a monthly basis or massive extremes massive overbought conditions those are going to eventually correct and that correction will be fairly brutal when that occurs and again but what causes it who knows you'll need some type of change in sentiment something that changes the dynamic I have no idea what that could be but this is one of those areas when you see this type type of advance this kind of vertical move. These vertical moves always without exception eventually break and reverse. This is this cannot remain this case for a long time and again this is eventually going to reverse itself. So just be careful if you're chasing this particular sector.

[00:04:58]Don't forget to take profits rebalance your risk but this is something ve very much to take attention to. This is what's driving that advance in the S&P 500 as well. So if this breaks, the entire market breaks because of the correlation right now that we have between those two sectors. Okay, that's what you need to know before the bell this morning.