Are Tech Stocks Poised for a Tumble?

Tech stocks have been down a bit over the last week of trading. Many see this as a sign of weakness for the strongest sector in this years market. But are tech stocks really poised to tumble?

The chart above is the ETF XLK, which represents the tech sector. We’ve put a box around the last seven trading sessions to show why many traders and investors are worried about tech stocks. Yes, the sector has shown some short-term weakness, and it seems to be losing upward momentum. Not only that, the NASDAQ Index, a broad representation of tech stocks, under-performed the Dow Index and the S&P 500 over the same time-frame. So is it time to move away from the hottest sector of 2020?

Well, let’s take a deep breath and look at the longer term picture.

Taking a look at the yearly performance of the tech sector, we see that has consistently made higher high pivots and higher low pivots since the market bottom in March. This is an indication of very bullish market.

The weakness over the last week shouldn’t be seen as a sign of longer term weakness, but actually a buying opportunity into an incredibly strong sector. The term “Buy the Dips” applies here.

HOWEVER, watch the higher low pivot formed on August 11th closely. If the ETF falls through this price, our series of higher lows come to an end, and it may signal selling pressure for this strong sector.

Jeff Drake
True Edge Trading