This key part of the stock market could be headed for a meaningful breakout
(See the video above for Frank’s complete chart breakdown.) Large Cap Technology’s recent comeback has been important for the broader market, and the Technology Select SPDR (XLK) now has an opportunity to turn that bounce into a more meaningful breakout, which could have a big influence on the overall market. Recently, we identified a developing inverse head-and-shoulders pattern in XLK, along with a smaller bullish handle formation. A sustained breakout would complete the larger formation and, using a measured-move approach, produce a potential target near $216. While XLK has rallied sharply from its late-July low, it remains essentially flat versus late May. In other words, technology has spent nearly four months digesting its prior advance. That makes the current setup more constructive than late May, when XLK was coming off a nearly parabolic two-month run and appeared much more extended. The longer-term chart provides an interesting blueprint, as well. Since 2023, five prior notable XLK pattern breakouts have produced immediate upside follow-through followed by additional gains. This matters beyond technology because XLK is by far the largest sector within the SPX. As technology has rebounded, the SPX has continued making higher highs and higher lows and is now attempting to complete its own inverse head-and-shoulders pattern. This resembles what played out in June and July, when back-and-forth trading eventually gave way to another push higher. More recently, another dip was bought following the Fed meeting, helping the SPX break out to new all-time highs. There is an important counterpoint, however. RSP , the equal-weight S & P 500 ETF, has been moving lower . From May through August, when technology weakened, other sectors stepped up, allowing RSP to continue higher and eventually reach the upside target from its own inverse head-and-shoulders pattern. Since then, that trend has reversed. As technology improved, demand left some of the non-growth sectors, and RSP has rolled over. That has created a potential bearish head-and-shoulders pattern, although important support remains intact. The key now is whether XLK’s bullish patterns continue to work. If technology keeps breaking out, it can help the SPX hold up and potentially allow RSP support to hold. If XLK’s bullish patterns fail while breadth continues to deteriorate, a downside break in RSP would become much more concerning. (See the video above for Frank’s complete chart breakdown.) DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
