Tech’s Leadership Crisis: XLK Flatlines as Smart Money Rotates and AI Bubble Fears Swell

If you want to know what peak complacency looks like, pull up a chart of the Technology Select Sector SPDR (XLK) this week. The price is frozen at $145.26, not so much as a twitch in either direction. The silence is deafening, especially against the backdrop of a market that can’t stop talking about AI, bubble risk, and the supposed next leg up for tech. Yet here’s XLK, the ETF proxy for the S&P 500’s tech darlings, looking like it’s on life support.

This isn’t just a random Tuesday lull. The market’s favorite sector is being quietly abandoned by the same institutional hands that drove it to nosebleed valuations in 2025. The latest AAII Asset Allocation Survey shows stock allocations slipping (down 0.6 points to 70.2%) while bonds pick up the slack. YouTube talking heads are suddenly obsessed with “broadening leadership” and “rotation”, euphemisms for “get out of tech before the music stops.” Even the Fed, usually the sector’s best friend, is distracted by politics and a government shutdown that’s delayed the jobs report.

The AI bubble narrative is everywhere. Tusk Ventures’ Bradley Tusk is on CNBC warning that “the bubble is starting to show its face.” The market, for once, seems to be listening. The past week has seen tech’s momentum stall, with XLK’s price action as flat as a central banker’s monotone. There’s no panic, but there’s no FOMO either. The risk is that this is the calm before a storm, or the start of a long, painful unwind.

The facts are hard to ignore. XLK is stuck at $145.26, refusing to budge even as volatility rips through crypto and commodities. The ETF is up nearly 60% from its 2024 lows, but the rally has lost all energy. Volume is anemic, and the options market is pricing in less movement than a Swiss watch. Meanwhile, the S&P 500’s other sectors are quietly catching a bid. Financials, industrials, even the much-maligned energy names are showing signs of life. The “great rotation” is no longer just a meme on FinTwit, it’s happening in real time, and tech bulls are the last to notice.

Historical context matters here. Every tech cycle ends with a whimper, not a bang. In 2000, it was the slow bleed after the dot-com crash. In 2022, it was the post-pandemic hangover. Now, in 2026, we have a new twist: AI hype, ETF flows, and a generation of traders who’ve never seen a real bear market in tech. The risk is that this time, the unwind will be slower, more insidious, and much more painful for anyone still clinging to the old playbook.

The macro backdrop isn’t helping. The Fed is stuck in a political quagmire, with Kevin Warsh under pressure to “stay out of politics” while the government can’t even publish a jobs report. Bond yields are creeping higher, and the market is starting to price in the possibility of a hawkish surprise. If rates stay elevated, tech’s valuation premium is going to look a lot less defensible. And if the rotation out of tech accelerates, there’s a real risk of forced selling as passive flows reverse.

Options traders are already hedging for downside. Implied volatility on XLK is ticking up, even as realized volatility stays pinned. The skew is steepening, with puts getting more expensive relative to calls. This is classic late-cycle behavior: smart money is buying protection, while retail is still dreaming of another AI-fueled melt-up. The divergence is striking, and it’s usually a warning sign.

The narrative around AI is starting to crack. Yes, OpenAI is still the hottest ticket in town, but even the bulls are getting nervous about sustainability and regulatory risk. The Tusk Ventures interview is just the latest in a string of warnings that the “AI trade” may have run too far, too fast. If the market starts to doubt the growth story, XLK is going to feel it first and hardest.

Strykr Watch

From a technical perspective, XLK is teetering on a knife’s edge. The $145.00 level is critical support, with a cluster of moving averages converging in this zone. A break below could open the door to a quick drop toward $140.00, where the next major support sits. RSI is hovering just above 50, signaling a loss of momentum but not yet outright bearishness. The 200-day moving average is still rising, but the slope is flattening, a classic sign of trend exhaustion.

Options open interest is stacked around the $145 and $140 strikes, suggesting that a move in either direction could trigger a wave of delta hedging. Watch for a spike in volume if XLK breaks below $145.00. On the upside, resistance is clear at $148.00, with little in the way of overhead supply until $150.00. But the path of least resistance looks lower, especially if the rotation theme gains traction.

The Strykr Score for volatility is a middling 42/100, but don’t be fooled. Complacency is the enemy here. When everyone is positioned the same way, it doesn’t take much to tip the balance.

The risks are obvious, but they’re being ignored. If the Fed surprises hawkish, or if bond yields spike, tech will be the first to feel the pain. A break below $145.00 could trigger stops and force passive flows to unwind. And if the AI narrative falters, there’s little to support valuations at these levels. The risk is asymmetric: plenty of downside, not much upside.

The opportunity, for those willing to fade consensus, is to position for a rotation out of tech and into sectors with real earnings power. Financials, industrials, and even energy look attractive on a relative basis. For the brave, shorting XLK against a basket of value names could be the trade of the quarter. Just don’t expect instant gratification, the unwind will be slow, but it will be relentless.

Strykr Take

The real story here isn’t just that XLK is flatlining. It’s that the market is finally waking up to the risks of crowding into one trade for too long. The AI bubble talk is a symptom, not the disease. The disease is complacency, and it’s spreading fast. If you’re still overweight tech, it’s time to ask yourself: what’s my exit plan? Because when the dam breaks, it won’t be orderly.

datePublished: 2026-02-02