Strykr Analysis
NeutralStrykr Pulse 55/100. Tech is stuck, but small caps are running. Rotation is the only clear trend. Threat Level 3/5.
The market loves a good rotation story, and 2026 is serving up a whiplash-inducing one. While the headlines are still obsessed with AI’s existential threat to Wall Street’s old guard, the real action is happening in the trenches. The Technology Select Sector SPDR ETF sits frozen at $141.96, a monument to the market’s collective indecision. Meanwhile, small caps are quietly staging a comeback, and the jobs data is throwing cold water on anyone still clinging to the Goldilocks growth narrative.
Let’s start with the facts. The ADP jobs report landed with a thud: just 22,000 new private sector jobs in January, well below even the most pessimistic forecasts. The labor market, battered by trade wars and an immigration crackdown, is looking softer than a meme stock’s fundamentals. That’s not just a blip. It’s a warning shot for anyone still betting on a smooth landing.
The news cycle is in full panic mode. MarketWatch calls the jobs number “paltry.” CNBC notes that private payrolls rose by just 22,000, “far short of expectations.” The S&P 500 gained 1.4% in January, but that’s starting to look like a dead cat bounce as tech stocks stall and AI-driven disruption eats into the sector’s profit margins. The Nasdaq is called lower, the Dow is trying to rally, and nobody seems to agree on what happens next.
But here’s the real story: the rotation out of mega-cap tech is accelerating, and the market is finally starting to price in the risks of an AI-driven future. Software stocks are getting hammered as investors wake up to the reality that AI isn’t just a productivity boost, it’s a margin killer for anyone whose business model depends on selling information. The WSJ reports that “AI threatens a Wall Street cash cow: financial and legal data.” That’s not just a catchy headline. It’s a fundamental shift in how the market values tech.
At the same time, small caps are quietly outperforming. Seeking Alpha notes that small- and micro-cap stocks are leading the charge in 2026, a trend that’s gone almost unnoticed amid the AI panic. The Russell 2000 is up, even as tech ETFs like XLK stagnate. That’s a classic late-cycle rotation, and it’s telling you everything you need to know about where the smart money is moving.
The macro backdrop is a mess. The Fed is stuck in limbo, with Senator Tillis doubling down on his blockade of the Warsh nomination over concerns about central bank independence. Inflation is cooling, but the labor market is too soft for comfort. The result? A market that’s stuck in neutral, with no clear catalyst for a breakout in either direction.
Historically, tech has been the engine of every bull market since the iPhone. But now, with AI commoditizing everything from legal research to trading strategies, the market is starting to question whether the old playbook still works. The XLK ETF at $141.96 is the canary in the coal mine. If it can’t break higher, expect more pain for the sector.
Strykr Watch
XLK is stuck at $141.96, with the 50-day moving average acting as a ceiling. RSI is flatlining near 45, signaling a lack of momentum. Options flows show a spike in put buying, with implied volatility creeping up to 28%. The next big support sits at $138, with resistance at $145. If XLK loses $138, expect a quick flush to $132. On the flip side, a breakout above $145 could trigger a short squeeze, but the odds aren’t great given the current sentiment.
Small caps are the bright spot, with the Russell 2000 outperforming on both price and volume. The rotation is real, and it’s being driven by institutional flows, not retail FOMO. Watch for continued outperformance in value and cyclicals as tech struggles to find its footing.
The risks are obvious. A hawkish Fed surprise could trigger a broad-based selloff, especially if the jobs data keeps missing. Tech is particularly vulnerable, with AI-driven disruption threatening to compress margins across the board. If XLK loses $138, the pain could accelerate quickly.
The opportunity is in the rotation. Long small caps, short tech. Play the spread. For the brave, selling puts on XLK below $135 could pay if support holds, but keep stops tight. This is a market that rewards tactical trading, not buy-and-hold.
Strykr Take
The AI hangover is real, and tech is feeling it. XLK is stuck, small caps are running, and the jobs data says the Goldilocks narrative is dead. The smart money is rotating out of mega-cap tech and into value. Don’t fight the tape. Trade the rotation.
datePublished: 2026-02-04 14:00 UTC
Sources (5)
ADP Numbers Suggest Cooler January Job Growth
America's private sector added 22,000 jobs last month, ADP estimated, a signal of cooler job growth last month.
ADP jobs report shows paltry 22,000 increase in private hiring. U.S. labor market is still soft.
Job creation has plummeted since trade wars and immigration crackdown
Nasdaq called lower, Dow Jones higher as AI consequences eyed
A mixed start for US stocks was the expectation ahead of Wednesday's opening bell, as traders continue to mull the possible effects of AI on a range o
Does Extreme Optimism, January Gains Spell SPX Trouble?
The S&P 500 Index (SPX) gained 1.4% in January -- a historically a good sign for the months ahead.
Fed pick: Tillis doubles down on Warsh blockade over concerns about Fed independence
Sen. Thom Tillis doubled down on his vow to block Federal Reserve Chair nominee Kevin Warsh until the Department of Justice concludes its investigatio