U.S. technology shares may need to pause after their recent run-up, but chart patterns suggest the rally could still have room to go.
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Tech shares, as measured by the Vanguard Information Technology ETF (VGT), are forming what technical analysts call a "bull flag," a pattern that typically signals a continuation of an existing uptrend rather than its end.
The pattern consists of a sharp rally, known as the flagpole, followed by a period of sideways or mildly downward drift, called the flag, as the market digests recent gains.
This marks the second time since late last year that VGT has produced this setup. The first flag formed from October to April, and then the fund broke higher from a low of 83.30 to a peak of 125.97, according to data supplied by LSEG. Using the size of that move, analysts can calculate a "measured move" projection from the more recent low of 108.15 to a target of roughly 150-151.
Trading volume offers additional support for the bullish view. Volume climbed during the recent price surge but has since eased during the consolidation phase, mirroring the pattern seen during the October-April flag. That pattern typically reflects a "distribution" phase, when early buyers take profits while new participants step in, even as the strongest conviction remains tied to the earlier rally.
But investors may need to be patient. The Relative Strength Index, a market measure of momentum, is still somewhat elevated after the recent run-up. This doesn't negate the bullish setup, but indicates that the market needs more time to digest the price action.
The bullish case would weaken, however, if VGT breaks below its recent low near 108 as well as the flag base — which is still a moving target — invalidating the pattern.
What the chart shows:
(Daily markets commentary from Reuters analysts on the signals financial charts are sending - and what they might mean.)
