(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of GOOGL.)

Technology stocks have been hot in 2018, with the Technology Select Sector SPDR (XLK) up by nearly 11% on the year, easily beating the S&P 500's return by almost 8 percentage points. The sector is breaking out in a colossal way, sending the ETF even higher, by as much as 8% based on the technical analysis. Stocks such as Facebook Inc. (FB), Alphabet Inc. (GOOGL), Microsoft Corp. (MSFT) and NVIDIA Corp. (NVDA) are showing signs of moving higher, and with these stocks among the largest in the entire S&P 500, a technology sector break out may even be a positive sign for the broader stock market. 

It wasn't long ago that the technology sector was being pummeled with the group down at one point by over 10% from its highs, both in February and April. But since April 2, the group has recouped all its losses and now stands on the doorsteps of a new all-time high

XLK Chart

XLK data by YCharts

Technology Stocks Break Out

The technology ETF is breaking out, with the ETF's price rising above a technical resistance level at $70.50. The resistance is just one part of a bullish technical pattern called a rising triangle. The pattern was formed at the start of May, followed by a month of the ETF trading sideways—also known as consolidation. Based on the technical pattern, the ETF appears it is set to rise to roughly $76.50, a jump of about 8%, from its current price around $71.

Strong Momentum 

The relative strength index (RSI) is also showing signs of momentum returning to the sector. The RSI had been trending lower since mid-November when it hit a reading of 83, well above the overbought level at 70. However, now the RSI has risen above the old downtrend, a bullish momentum signal. The current reading for the RSI is around 66, which suggest it can continue to rise more, a bullish indication for the price of the ETF.   

NVIDIA

NVIDIA is one technology stock that is nearing a breakout, sitting just below its previous all-time high of $260.50, at roughly $257. Should the stock eclipse that old high, it too would have broken out, and rise toward $280, a jump of about 9% from its current price. The RSI for NVIDIA is also trending higher and is currently at a level of only 64, and like the XLK ETF, suggests shares of NVIDIA have further to rise before hitting overbought levels. 

The technology group has some of the largest companies in the entire stock market at the top, and with this sector breaking out the broader averages are likely to ride on its coattails.

Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.