The S&P 500 Technology Sector SPDR (XLK) is the primary lens through which the market views the tech heavyweights of the S&P 500 Index ($SPX). After a fine start to 2026, XLK, which tracks the roughly 70 tech stocks within the S&P 500, has pulled back. In the case of some of its components, quite severely.
Is the tech sector operating in a "post-peak" environment? Or is this another round of light to moderate chop, as they say on commercial airline flights to comfort the passengers?
Why XLK Is As Important As Any ETF on the Market Right Now
Even if you don’t own it, you probably hold a lot of the largest positions in it, either directly or through other exchange-traded funds (ETFs). It has many of the usual suspects in the tech and artificial intelligence (AI) business. We are in the process of watching the market determine if they are too richly valued or just in need of a pause.
While it has managed a 25% gain over the last year, 2026 has started with a reality check. The index is grappling with high valuations — including a price-to-earnings (P/E) ratio nearly 37x — and the market’s demand for tangible results from the massive AI investments of 2025.
Within XLK’s 70 holdings, the performance gap between winners and losers is widening. Here are the three best and worst performers so far this year. Then, we’ll take a look at some of their charts to see what the forward-looking view indicates.
The ‘Winners’ Showing Vulnerability
Sandisk (SNDK) sure was the hottest thing — for a minute. The stock flew higher to start the year but has given back a chunk of that recently. A 16% dive on Wednesday was the latest part of that. I could give you all of the narratives and fundamental aspects of it. But that’s easy to find using other Barchart tools. And in a case like this, since trees do not grow to the sky, suffice it to say that SNDK was due. Any stock that triples in a matter of weeks is automatically vulnerable in my book.
Western Digital (WDC) has been a rocket ship over the past year, which makes me wonder what’s next. In my return opportunity and risk (ROAR) system, it scores a 40. That’s typically reserved for stocks that have gone up so sharply, they cannot be considered low-risk buys anymore.
But that doesn’t mean they can’t keep climbing a wall of worry. But if that PPO at the bottom of the chart crosses over soon, that ROAR Score will drop, signifying a higher risk level. The 7% drop in WDC on Wednesday might have been a canary in a coal mine. We’ll see.
This Stock Is Cheap, But That Doesn’t Make It a Buy
Intuit (INTU) represents that group of tech stocks that have already been hung out to dry by investors. Nearly cut in half since its August 2025 top, I don’t see this train stopping on a dime. Because trains can’t do that, nor are software stocks bound to, beyond a bounce.
I’m Not Lovin’ AppLovin
AppLovin (APP) had some high-risk signs back in December when its 20-day moving average rolled over and created a double top. It broke the prior low recently, cratering 16% on Wednesday. This one has had a very low ROAR Score (i.e., risk was abnormally high) since Jan. 7, when the stock traded at $633. It closed at $387 on Wednesday.
The Bottom Line
The internal reshuffle within XLK suggests that the 2026 tech trade is no longer a "rising tide lifts all boats" scenario. The market is becoming highly selective, rewarding companies with clear AI monetization and punishing those with valuation bloat or structural uncertainty. This is a time for risk management. To not account for both sides of the AI coin would be to invest blindly, at a time where 20/20 vision can be the difference between preserving capital and seeing it cut in half.
Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. His weekly investor letter can be accessed at ETFYourself.com, Substack site. To copy-trade Rob’s portfolios, check out the new PiTrade app. And, for a change of pace, his new blog on racehorse ownership as an alternative asset is at HorseClaiming.com.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
/Oracle%20Corp_%20office%20logo-by%20Mesut%20Dogan%20via%20iStock.jpg)
/Tesla%20Inc%20tesla%20by-%20Iv-olga%20via%20Shutterstock.jpg)
/Microsoft%20sign%20at%20the%20headquarters%20by%20VDB%20Photos%20via%20Shutterstock.jpg)