XLK Monthly: VPA Anomalies Show the Tech Rally Was Built on Sand

XLK Monthly: VPA Anomalies Show the Tech Rally Was Built on Sand

XLK is the State Street Technology Select Sector SPDR ETF. It tracks the technology sector of the S&P 500 and is heavily concentrated in a few mega-cap names. The top three holdings — typically NVIDIA, Apple and Microsoft — usually account for around 40% of the fund, while the top 10 make up roughly 65%. When you analyse XLK, you are largely analysing the price behaviour of the biggest technology stocks. You can read any chart with volume and price. On the monthly timeframe for XLK, the anomalies are glaring and simply confirm what many of us suspected and commented on at the time: the tech rally was built on sand. The hard evidence is sitting right there in the ETF itself.

The Candles That Tell the Story

Look first at the two candles of September and October last year (red arrows). These show the kind of action we expect in a healthy move — good, strong volume and relatively wide spreads. Note also that the second candle has a narrower spread than the first, yet on increased volume. This is classic absorption and leads into a short-term reversal and secondary trend. Now compare that with the two very wide-spread candles of April and May this year (yellow arrows). What do you see when you look at the volume? Roughly 2–3 times the price move (spread) compared with half (or less than half) the volume of those earlier candles. This is a clear anomaly — a low-effort, high-result move that looks like a classic trap designed to draw participants into a trend that is now breaking down.

Wyckoff’s Three Laws and Why They Still Matter

This is VPA 101 on a monthly chart and a direct illustration of the principles Richard Wyckoff first formalised almost a century ago. Wyckoff’s method rests on three fundamental laws:

• Law of Supply and Demand — Price rises when demand exceeds supply and falls when supply exceeds demand. Volume and price together reveal which side is in control.
• Law of Cause and Effect — Every significant move is the effect of a prior cause (usually a period of accumulation or distribution). The larger the cause, the larger the subsequent move.
• Law of Effort versus Result — Volume is the effort; price movement is the result. When the two are in agreement, the move is healthy. When they diverge — as they clearly do on the April and May candles here — the move lacks genuine participation and is unlikely to be sustained.

The April–May candles are a textbook example of the third law in action: wide spreads (big result) on relatively light volume (little effort). That is not genuine institutional demand. It is weakness dressed up as strength.

From Wyckoff to Modern Volume Price Analysis

The same principles were used by some of the most iconic traders in market history — Charles Dow, Jesse Livermore and Richard Ney among them. They read the ticker tape for the relationship between price and volume long before modern charts existed. This is the approach I developed and explained in my best-selling book, A Complete Guide to Volume Price Analysis, which I am proud to say has helped thousands of traders worldwide discover the missing piece of the puzzle.

It levels the playing field for us as retail traders. The book shows how the simple mechanics of effort versus result, applied consistently across any market or timeframe, give you a genuine edge – to see behind the curtain and establish the true relationship which exposes the traps and when the institutions and insiders are buying or selling. Volume Price Analysis simply reads the relationship between price and volume. When effort and result disagree, the chart tells you the move is either being absorbed or moving on thin air. Monthly charts make these signals especially significant because they filter out short-term noise and show the true character of the campaign.

Learn to Read the Market the Same Way

If you want to learn how to read these signals consistently across markets and timeframes, join one of our trading programs or the one-to-one coaching program. The principles are simple, the application is powerful, and the evidence is sitting right in front of us on charts like XLK.

By Anna Coulling – creator of volume price analysis

By Anna Coulling – creator of volume price analysis