One technical gauge is signaling caution for large-cap U.S. stocks. On Thursday the SPDR S&P 500 ETF Trust (SPY) recorded a daily Relative Strength Index reading of 78, a level commonly interpreted as overbought. The ETF fell 1.2% the following trading day.
BTIG technical strategist Jonathan Krinsky points to historical precedents for that type of reading. Since 2023, there have been six instances in which the SPY ETF experienced a decline of more than 1% after the RSI topped 75. In five of those six episodes, SPY went on to record a peak-to-trough fall of at least 7% in the ensuing weeks. The sole exception, which occurred in 2023, saw the market move sideways before resuming its advance. Krinsky also noted that average returns were negative across every monitored horizon from 5 to 40 days following the signal.
The RSI concern arrives amid a broader weakening in market internals that, according to Krinsky, has been developing over several weeks. Market participants saw a pronounced pullback in the semiconductor and AI complex during Friday’s session. The VanEck Semiconductor ETF (SMH) fell 3.8%, marking its largest single-day decline since March.
Even as some funds rotated into software names, overall breadth was poor. Volume was heavily skewed to declining shares on the New York Stock Exchange, with roughly 70% of NYSE volume occurring in stocks that were falling - the highest such proportion since March.
Krinsky highlighted an extreme divergence between the index-level picture and the performance of individual S&P 500 constituents. On Thursday the S&P 500 stood about 8.5% above its 50-day moving average, while only 47% of its member companies were trading above their own 50-day averages. Krinsky described that gap as "by far the widest divergence on record."
Interest-rate dynamics add another layer of stress. The 30-year Treasury yield has risen back above 5% and is approaching its 2023 cycle peak of around 5.17%. While the S&P 500 index itself has largely withstood the rise in longer-term yields, the same cannot be said for the average stock. As recently as last Wednesday, 9% of S&P 500 components had posted 52-week lows.
Krinsky warned that a sustained move to a higher trading range for long-dated yields "would likely finally be a headwind for even the tech/AI names that have remained immune thus far."
Concentration within the technology sector compounds the vulnerability. The technology weighting in the S&P 500 has climbed to a record 37.5%, surpassing its prior high during the dot-com era. That level of concentration, combined with the other technical and fundamental signals, underlies the caution expressed by Krinsky and others monitoring market internals.
Key takeaways
- SPY’s daily RSI reached 78, and the ETF declined 1.2% the next day; historically similar RSI exceedances have often preceded meaningful pullbacks.
- Semiconductor and AI-related names showed notable weakness with SMH down 3.8% in its worst day since March, and overall market breadth was weak with 70% of NYSE volume in declining stocks.
- Index-level strength is obscuring uneven internals: the S&P 500 sits 8.5% above its 50-day average while only 47% of members trade above their own 50-day averages, a record divergence.
Risks and uncertainties
- Technical signal risk - A high RSI reading on SPY has historically been followed by negative returns across 5- to 40-day windows and, in most comparable cases since 2023, at least a 7% peak-to-trough decline. This risk directly affects large-cap equities and index-tracking ETFs.
- Sector and breadth risk - Weakness concentrated in semiconductors and AI-related stocks, coupled with poor breadth (70% of NYSE volume in declining issues), raises the potential for broader equity market underperformance, particularly in technology and related cyclical sectors.
- Rate-sensitivity risk - The 30-year Treasury yield moving above 5% and near its 2023 cycle peak poses a headwind for stocks that have not priced in a sustained higher yield environment; the average S&P 500 member has shown greater sensitivity than the headline index.
This analysis reflects the technical observations and market readings reported by BTIG and discussed by Jonathan Krinsky. The data cited - the RSI reading, the post-RSI performance patterns, the SMH single-day move, breadth measures, the divergence between index and constituent 50-day averages, the rise in the 30-year Treasury yield, the share of S&P members at 52-week lows, and the technology sector weighting at 37.5% - are reported as described and form the basis of the cautionary signals noted above.