Nvidia is the biggest holding in the XLK tech fund

A surge to record highs for technology stocks has pushed them to what is considered by technical analysts to be overbought levels, but history shows investors should not use that as reason to cut their exposure.

That's the message from Bluekurtic Market Insights, a market-research group, who in a posting on X noted that the Nasdaq 100 NDX has just delivered a six-day winning streak to close Tuesday at a fresh peak.

A play similar to the tech-heavy Nasdaq 100 is the popular State Street Technology Select Sector SPDR exchange traded fund XLK, whose top three holdings - Nvidia (NVDA), Apple (AAPL) and Microsoft (MSFT)- have a 37% weighting.

Known by its ticker XLK, the fund also sits at a record. However, its strong recent run pushed its 14-day relative strength index into supposed overbought territory, notes Bluekurtic.

The RSI is a momentum gauge that's closely watched by traders as it can signal when an asset is overbought - when the RSI is above 70 and poised for a pullback - or is oversold - when the RSI is below 30 and poised for a bounce.

Source: Bluekurtic Market Insights

Bluekurtic observes that the XLK's RSI this week moved above the 70 mark for the first time in three months. Investors with more of a short-term mindset therefore may be tempted to trim positions in the fund.

Bluekurtic cautions against such a move. "As we've said before, overbought isn't a reason to sell," they say. "Au contraire, it's actually bullish."

And they point to recent history to back up their view. As the table below shows, of the last 20 cases when the XLK's RSI was signaling overbought, the fund was higher three months later 17 times. Indeed, the average gain was 6.1% over that period.

Source: Bluekurtic Market Insights

"The word overbought needs a serious rebranding," they say.

-Jamie Chisholm