Investors have seen another reminder of how quickly market conditions can change. In late July, technology stocks experienced a sharp pullback, with the Technology Sector Index declining to within approximately 4% of bear-market territory. Semiconductor stocks experienced even greater weakness, as the Semiconductor Index fell as much as 25% from its previous high and generated four consecutive sell signals.
The weakness also affected technology's relative-strength position. The sector fell from the top position in the Dynamic Asset Level Investing (DALI) indicator, moving behind industrials and healthcare. Despite the decline, technology remained among DALI's top three sectors and therefore continued to represent an overweight area based on this methodology.
Technology Rebounds
Since the late-July decline, technology stocks have rebounded sharply. The Technology Sector Index gained 11.5% during the five trading days from July 29th through August 5th, representing one of the sector's strongest five-day advances in recent years.
An important aspect of the rebound has been the breadth of participation. Rather than gains being concentrated primarily among the sector's largest companies, a broader range of technology stocks has participated. The S&P 500 Equal Weight Technology Index, which gives approximately equal weight to its constituents, has risen by double digits from its recent low.
Through August 7th, the S&P 500 Equal Weight Technology Index was outperforming the Technology Sector Index by approximately 12 percentage points year to date. This suggests that, unlike in recent years when the largest technology companies frequently led performance, the sector's largest constituents have generally lagged their equal-weighted counterparts in 2026.
Source: Nasdaq Dorsey Wright
Technology Participation Improves
Since the current bull market began on October 12th, 2022, the Technology Sector Index has gained a cumulative 222.5% through the period analyzed. During that same period, the Technology Bullish Percent, a measure of the percentage of technology stocks on Point & Figure buy signals, averaged 38.7%.
During the recent market decline, the Technology Bullish Percent fell below 28%. It has subsequently reversed into a column of Xs and recovered to approximately 45%, indicating improving participation across the sector.
Historically, periods when this indicator has been in a column of Xs between 40% and 60% have coincided with an average subsequent one-year return of 15.4% for the Technology Sector Index. While this historical relationship provides useful context, it is important to remember that past performance does not guarantee future results, and historical averages should not be interpreted as forecasts.
Source: Nasdaq Dorsey Wright
Semiconductors Also Strengthen
Semiconductor stocks have experienced an even more pronounced rebound. The Semiconductor Index recently returned to a Point & Figure buy signal at after previously recording four consecutive sell signals. The Index also regained near-term relative strength versus the S&P 500 Equal Weight Index.
Although the Index continues to face technical resistance below its previous all-time high, the improvement in price, relative strength, and market participation represents a notable change from conditions seen during the recent decline.
Source: Nasdaq Dorsey Wright
Participation within the semiconductor industry has improved significantly as well. The Semiconductor Bullish Percent fell to approximately 8% during the sell-off before subsequently rising above 50%. This indicates that more than half of the semiconductor stocks measured by the indicator had returned to Point & Figure buy signals as of the period analyzed.
Historically, reversals from very low Bullish Percent readings have sometimes preceded periods of stronger performance. Since the Semiconductor Index's inception, there have been 11 other instances in which the Semiconductor Bullish Percent reversed after falling to 8% or below. Following those occurrences, the Semiconductor Index produced an average one-year return of 17.5% and a median one-year return of 23%.
The sample size is limited, however, and the historical periods include very different market environments, including the dot-com era and the 2022 market decline. These results therefore should not be viewed as predictive of what will occur in the current environment.
Source: Nasdaq Dorsey Wright
The Bottom Line
The recent improvement in technology and semiconductor stocks is encouraging from a technical perspective. Technology remains highly ranked within DALI, market participation has broadened, and semiconductor indicators have improved considerably from their recent lows.
At the same time, both groups remain subject to meaningful volatility, and technical resistance remains in several areas. Historical studies can provide useful perspective, but they cannot predict future market performance. For now, the improving relative strength and broader participation support a constructive technical outlook for technology and semiconductors, while continued monitoring of these indicators remains warranted.
The current reading for the PR4050 is: U.S. Equity Core = 99.30% & Money Market = 6.34%. For the PR4050 indicator to trigger and alert us when we should consider moving to cash, U.S. Equity Core must be 40% or below and Money Market must be 50% or above.
Source: Nasdaq Dorsey Wright
Below is the most recent D.A.L.I. (Dynamic Asset Level Investing) Indicator showing International Equities and Domestic Equities in the top two spots, while both maintain a commanding lead over Cash and Fixed Income.
Source: Nasdaq Dorsey Wright
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Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future. Nasdaq Dorsey Wright developed the indicators described above. They have been prepared without regard to any particular investor's investment objectives, financial situation, and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this report without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions.
Nasdaq Dorsey Wright’s “DALI" employs relative strength-based analysis to rank macro asset classes based on developing leadership trends within the global capital markets. The objective guidance within DALI provides the tools necessary to properly allocate portfolios across all major asset classes in an effort to emphasize strength wherever it exists. Domestic Equities, International Equities, Commodities, Currencies, Fixed Income and Cash are evaluated daily to identify dynamic developments across investment genres, as well as within them. This tool provides the tactical precision that allows investors to adapt as the market leadership changes.
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