Semiconductor stocks have been soaring higher in the past few months, and there’s no end in sight to the rally. Friday’s sharp selloff is being reversed, with the Philadelphia Semiconductor Index up 83% year-to-date.
The rally we are having today is not entirely unprecedented, though. There have been surges in the past, albeit not this high. Still, there are some important takeaways from those rallies to keep in mind before you go all-in on the euphoria.
An active trader on X/Twitter posted last week that the SOX hit its highest weekly relative strength index (RSI) since 2000. The S&P 500 Large Cap Index is nearing 150% above its 200-month moving average for the 4th time in its history.
Popping in with things getting historic:$SOX = highest weekly RSI since 2000 & hitting upper channel; $SPX nearing 150% above 200-MONTH moving average for only the 4th time in modern history (two of those cases it ended up going even higher while the other was the 1987 Crash). pic.twitter.com/QO3skvS8xv
— Andrew Adams CFA, CMT (@DayTraderGator) June 3, 2026
The three other times it did this, it ended up going higher twice, with the other one resulting in the 1987 crash.
This might seem like an opportunity since the SPX still went higher, but the trader has a warning. Only 50% of the NYSE is above the 50-day moving average. Tech is the one moving the needle, and “something [is] likely to give soon”.
We saw the Friday selloff soon after this post.
The market is beyond overheated
The RSI is a metric that measures the magnitude of recent price changes to evaluate overvalued or undervalued conditions. If it goes above 70, it indicates that the momentum is too high and it might be time to start taking profits. Historically, major pullbacks have been preceded by rallies that took the RSI over 70.
What we are seeing now with SOX could be even more dangerous, with the current RSI at 87. This is not an indication of a moderate pullback. Instead, this is something that has only happened before major crashes in the past.
If you turn the page to the S&P 500 Large Cap Index, it’s also lining up with the SOX chart.
The SPX went 150% above the 200-month moving average in 1956, after which it entered a “cooling off” period. In 1987, the SPX crossed that line again and cratered soon after.
Only in the late 1990s did the SPX hold above that line, but this Dot Com bubble later imploded.
What this trader is pointing out
Andrew Adams is pointing out that the current market rally is almost entirely tech-driven. Only 50% of companies in the not-so-tech-heavy NYSE are above their 50-day moving averages.
If the tech rally slows down or collapses, the rest of the market will follow suit.
We could be looking at something similar to the Dot Com bubble, though you should keep in mind that the market back then was not propped up by earnings. AI companies are now posting solid sales and profit growth, and the rally has shifted toward companies with strong fundamentals. Wall Street isn’t buying up stocks just because they are stamped with an “AI” tag.
A slowdown or a crash will likely originate from hyperscalers. Once they stop spending, it could then lead to chip stocks underperforming and drag everything down.
I wouldn’t panic just yet
Most investors would admit that a crash is likely at some point. That does not mean you should sell today. Look at the Dot Com bubble, for example. Markets started getting overvalued around 1997. The then Federal Reserve Chairman Alan Greenspan warned about “irrational exuberance” in late 1996.
You would’ve missed most of the rally if you listened to him, because the bubble only started bursting in 2001. If we are in an AI bubble today, there’s no knowing when this could end. Under Trump and Warsh, it’s even harder to predict what can happen. If they loosen policy despite inflation, it can delay a crash for years.
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