Tech ETF XLK Stalls as AI Hype Fizzles and Sentiment Turns Cautious in 2026

If you want to know how fragile the market’s AI narrative really is, look no further than the Technology Select Sector SPDR ETF, better known as XLK. At $135.59, XLK hasn’t budged an inch in the last session, and that’s not a typo. In a market that’s supposed to be living and dying by the next AI headline, the sector’s flagship ETF is flatlining, and that should make every momentum chaser nervous.

This isn’t just a technical pause. It’s a sentiment check. The latest AAII Sentiment Survey shows bullishness dropping by 4.7 percentage points to 39.7%, while neutral sentiment jumps 6.5 points to 31.3%. The market is stuck in the mud, and tech is the axle grinding against it. The real kicker? AI news is everywhere, but it’s not moving the needle. Anthropic’s new Claude Opus 4.6 model is apparently scaring the legal sector and can run financial analyses, but software and data stocks are getting hammered, not lifted. The so-called rotation into AI is looking more like a game of musical chairs with no music.

XLK’s price action is a microcosm of the broader malaise. After a euphoric 2025, tech’s leadership is being quietly questioned. The Nasdaq’s recent divergence from the Dow has snapped back with both indices dragging lower, and risk assets are taking a hit. The Atlanta Fed’s Bostic is out saying inflation has been too high for too long, and the market is suddenly remembering that AI can’t print money or cut rates.

The context is even more damning when you zoom out. Tech’s outperformance over the past decade has been fueled by easy money and a relentless bid for growth at any price. Now, with the Fed in “wait and see” mode and layoffs mounting in the real economy, the air is coming out of the balloon. The bullish crowd is thinning, and the neutral camp is swelling. That’s not the backdrop for a melt-up. It’s the setup for a sideways grind, or worse, a correction.

XLK’s inability to rally on AI news is a tell. The market is saturated with hype, and the incremental buyer is nowhere to be found. The ETF is sitting right at its $135.50-$136.00 resistance band, and the lack of follow-through is palpable. If tech can’t catch a bid here, it’s hard to see what will spark the next leg higher. The rotation into defensive sectors, as noted in sector ratings for Q1 2026, is not just a blip. It’s a regime change.

There’s also a whiff of absurdity in the way the market is treating AI. Every new model is greeted with a mix of awe and existential dread, but the actual impact on earnings and productivity remains theoretical. The legal sector is apparently shaking in its boots, but tech investors are yawning. That disconnect is telling. When the narrative gets ahead of the numbers, price tends to catch up, usually to the downside.

Strykr Watch

From a technical standpoint, XLK is stuck in a tight range. The $135.50 level is acting as a magnet, with resistance at $136.00 and support down at $133.00. The 50-day moving average is flattening, and RSI is hovering around 48, neither overbought nor oversold. Volume is drying up, which suggests that conviction is low on both sides. If XLK breaks below $133.00, the next stop is $130.00, where the 200-day moving average sits. On the upside, a close above $136.50 could trigger a short squeeze, but the odds are fading with each passing session.

The lack of volatility is almost eerie. Implied vol is near multi-month lows, and realized vol is collapsing. This is the calm before the storm, not the new normal. When volatility returns, it tends to do so with a vengeance.

The risk is that the market is underpricing the potential for a sharp move. With sentiment shifting and macro headwinds building, the path of least resistance is lower. Watch for a pickup in volume and a break of Strykr Watch to signal the next move.

The bear case is straightforward. If tech can’t rally on good news, what happens when the news turns bad? Layoffs are rising, the Fed is on hold, and earnings growth is slowing. The bull case hinges on a breakout above $136.50, but that looks like a fading dream.

Opportunities exist for nimble traders. A break below $133.00 is a short trigger, with a stop at $134.50 and a target of $130.00. On the long side, a close above $136.50 could see a quick move to $140.00, but that’s a low-probability bet right now. Covered calls and straddles make sense in this environment, as volatility is cheap and direction is uncertain.

Strykr Take

The AI hype cycle is running on fumes, and XLK is the canary in the coal mine. The market’s inability to rally on good news is a red flag, not a buying opportunity. Until tech can prove it deserves its premium, the risk is to the downside. Stay nimble, watch the levels, and don’t get caught chasing yesterday’s narrative. Strykr Pulse 43/100. Threat Level 3/5.