S&P 500 Technology Sector, Significant Overbought (Caution)S&P 500 Information TechnologySP:S5INFTSwissquoteLast Monday, I shared an analysis on the S&P 500 index showing that it was under major technical resistance and that there was a risk of profit-taking. The S&P 500 has indeed experienced a few sessions of consolidation. Today, I want to emphasize the key US technology sector, which is heavily overbought both technically and fundamentally. To demonstrate that the US technology sector is currently in an overbought condition in the stock markets, I will adopt a dual approach combining technical and fundamental analysis. •The first step is to study the S&P 500 Information Technology sector index, which is one of the eleven super-sectors of this benchmark index. This index groups the major US technology companies and reflects their overall stock market dynamics. The technical analysis of this index will help identify long-term trends, support and resistance zones, as well as momentum indicators. In particular, I will examine oscillators such as the RSI (Relative Strength Index) on the monthly timeframe, known for detecting overbought or oversold phases. The goal is to verify whether current signals point to an excessive bullish move likely to trigger a correction. •In addition, I will integrate a fundamental analysis by focusing on sector valuation. Two indicators are used: the Price to Earnings ratio (P/E ratio) and Shiller’s CAPE (Cyclically Adjusted Price to Earnings). By comparing current levels of these multiples to their historical averages, it is possible to determine whether the sector is valued at an excessive level relative to its fundamentals. The combination of these two approaches provides a comprehensive view and allows us to conclude that the US tech sector is currently overbought both technically and fundamentally. This is particularly important since this sector index represents almost 40% of the S&P 500 calculation. Below, you have two illustrations. The first chart shows the monthly candlesticks of the S&P 500 Technology sector index. It is interesting to note that all major past tops were preceded by an overbought condition and a bearish divergence. Currently, there is overbought but no bearish divergence. In the inset at the bottom right of the chart, you can see a table with the valuation data of the S&P 500 Technology sector index. This is by far the most expensive sector of the S&P 500, and its Shiller P/E ratio is even at its historical record. In short, caution is warranted. Even though there is no monthly bearish divergence, this sector is very expensive, and profit-taking, at least in the short term, may seem justified. DISCLAIMER: This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. 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