Things are 'deteriorating' for tech: Chartist

Shoppers in an Apple store in New York.
Tech's moment of truth   

Technology stocks have struggled of late, with the sector underperforming the broader market over the past six weeks. And according to one top technician, it's about to get a lot worse.

"This has been an outperforming area of the market that's starting to underperform," said Carter Worth, technical analyst at Cornerstone Macro, on CNBC's "Options Action" on Friday. "That's usually the sign that something is starting to go wrong."

Worth noted that 65 percent of all tech stocks in the S&P 500 information technology sector were trading below their 150-day moving average, a technically significant development that shows the trend for these equities may start to head south.

"Things are deteriorating here," Worth said.

Since hitting a high in May, the Technology Select Sector SPDR Fund (XLK), the ETF that tracks tech stocks, has fallen 4 percent. And according to Worth's chart work, signs are pointing to more downside in the near term.

"If we retrace half of the October lows," said Worth, referring to the last time tech as a sector flirted with a correction, "we have another 3 percent to go."

That would put the XLK at about $40, which would also happen to correspond to the long-term trend line of the past four years.

The prediction comes amid a huge week for tech earnings. Intel and Netflix are set to report on Wednesday, and Google and eBay on Thursday. Together, those names comprise about 12 percent of the XLK.

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