Tech vs. the rest

Quick recap: last week

Last week's Kvarn Pulse newsletter was written in a fairly optimistic mood. The S&P 500 index appeared to have found its footing after a couple of weak weeks, climbing close to its record highs. In addition, bitcoin was rising and the altcoin market in particular was strengthening, together pointing to a possibly growing “risk-on” mood.

Is the rally losing steam?

A week ago, we had seen the equity market turn higher, at least temporarily, raising hopes of a return to a more sustainable uptrend.

Over the past week, however, this attempted rally has at the very least paused for breath, if not begun to fade outright. The S&P 500 index has not made new highs and has instead fallen back below its 10- and 20-day moving averages.

The S&P 500's constant zigzagging over recent months naturally makes analysis quite challenging. For now, we think the best approach is to treat all moves between 7,550 and 7,800 points with some caution and to draw firmer conclusions only once the index breaks out of this range in one direction or the other.

The past two weeks offer grounds for both an optimistic and a pessimistic reading. An optimist could point out that the S&P 500 index is still above its rising 50-day moving average. In addition, the 10-day moving average is above the 50-day average and still rising. These facts would support the view that the uptrend is still intact.

A pessimist, on the other hand, could see a “lower high” forming in the S&P 500 last week, meaning a peak below the previous one. This reading may still be a little premature, but it would be confirmed if the index were to drop below its 50-day moving average next.

A pessimist could also point out that the Relative Strength Index once again failed to rise above 60. This is often seen as a hallmark of an uptrend, and when it is missing, the price action can be read primarily as sideways movement.

So the S&P 500 index has drifted without a clear trend a couple of percent below its record highs. The lack of action at the index level, however, masks the fact that within the equity market we have seen one of the strongest divergences in a long time.

The Nasdaq 100 index, which is weighted towards large technology companies, has traded at record highs in recent weeks.

The equal-weighted S&P 500 index, which reduces the influence of these tech giants, has by contrast been falling sharply during September, diving well below its 50-day moving average.

If we exclude the technology sector altogether, the downtrend looks even stronger. The SPXT ETF, which tracks the S&P 500 excluding technology, has already fallen below its 200-day moving average over the past week.

In other words, technology companies are at their peaks, while the rest of the S&P 500 is starting to resemble an outright bear market.

Only about 20 percent of S&P 500 stocks are trading above their 50-day moving average.

The defining market development of September, then, appears to have been the complete divergence between the technology sector and the rest of the S&P 500.

It is worth keeping in mind, however, that divergences like this typically do not last very long. The key question for October, then, is: will this divergence close with the rest of the equity market catching up with the technology sector, or with the technology sector following the rest of the market lower?

We are not going to make a prediction, as the conditions for both scenarios are in place. Right now, however, we have to take the possibility of the latter scenario quite seriously.

The VIX index has continued to rise over the past week.

Admittedly, the VIX's absolute levels are not high, and it is still lower than in the first half of September.

If, however, we compare the standard VIX with the three-month VIX (VIX3M), we can see that this ratio is already higher than at any point since July. This suggests that the market's expectations for short-term volatility appear to be rising.

Rising even more clearly is the MOVE index, which measures expected volatility in the bond market.

In summary, the equity market currently appears to have split into two completely separate segments. It looks as though investors are seeking shelter in the large technology companies tied to the AI boom. Outside this segment, the equity market has been in a clear downtrend, with no sign of a turnaround. Our clearest expectation is that the strong divergence between these segments will close in the coming weeks.

Gold trending lower

Precious metal prices have turned into an even clearer downtrend over the past week.

Until last week, it looked as though the gold price might hold above its rising 50-day moving average. Over the past week, however, the price has continued to fall and is now below all of its key moving averages.

Over the past week, we have also started to see gold miner ETFs (GDX) weaken more clearly against gold itself (GLD), which reinforces the view that investors are pessimistic about gold in the short term.

For gold, the next key question is whether the price will hold above $4,000. This psychologically important round number served as gold's floor during the summer months, and it may do so again. On the other hand, a break below this level would mean preparing for a potentially much deeper move lower.

Crypto market's positive momentum continues

As noted above, equity market performance in recent weeks has been clearly split between the technology sector and almost the entire rest of the market. In this situation, cryptocurrencies have so far followed the technology sector, and market sentiment still appears clearly positive.

The price of the largest cryptocurrency, bitcoin, has not made new highs since Wednesday, 23 September 2026. It is nevertheless trading above its rising 20- and 50-day moving averages, which makes the past week's sideways movement look like nothing more than a natural consolidation after a strong rally.

Within the crypto market, altcoins have continued to strengthen against bitcoin. This points to a strong appetite for risk among crypto investors. If positive sentiment in the crypto market were about to turn, we would expect to see it fairly quickly in this ratio turning lower. There is no sign of that yet, and our primary expectations for the crypto market remain clearly positive.

Theme ideas

As noted in the equity section above, we see clear short-term risks in the equity market. For this reason, we are not presenting any actual theme ideas this week.

We would, however, point out that many segments of the equity market outside the technology sector have weakened so quickly in recent weeks that their immediate downside is starting to look limited. For example, financial sector ETFs are already starting to look oversold.

The industrial sector may also be starting to look oversold, and its Relative Strength Index is already showing a “bullish divergence” that signals the decline is slowing.

These signs could suggest that, at least in some sectors, the sell-off outside the technology sector may have limited room left to run.

A stronger reading of these observations would be that the hardest-hit sectors could next see at least a short-term bounce.

A more cautious reading could be that even if these sectors do not perform strongly in absolute terms, they could still outperform, through mean reversion, a technology sector that has completely decoupled from the rest of the market.

In the latter case, it may be worth considering adjusting allocations if a portfolio is heavily weighted towards the technology sector, which has been the strongest performer in recent weeks.

It should be noted, of course, that at the moment we are only seeing a situation in which different sectors look stretched against one another. There is no sign yet of such “mean reversion” actually taking place. In our view it looks likely in principle, but it is of course possible that the technology sector's outperformance simply continues.

The investment markets remain fascinating. The equity market appears to have split in two completely different directions. Can a divergence this strong continue, or will we soon see a sharp convergence? What will it mean for cryptocurrencies? We may get answers to these questions over the next two weeks.

Kvarn Pulse is taking a break next week, and we will be back with our analysis in week 42!