How to play a rebound in hard-hit tech sector

For years, the technology sector has been on a tear. But this year, it's fallen on hard times.

The popular FANG basket of tech stocks—Facebook, Amazon, Netflix and Google (now Alphabet)—has cooled after leading the market in gains last year, and the tech-dominated Nasdaq 100 index has tumbled into correction territory.

But some say tech has fallen too far, too fast. And recently, there are indications that buying appetite is back. Over the last five days, the Nasdaq 100 has recovered nearly 5 percent.

If the rebound continues, here are some of the best historical trades according to Kensho, a tool used to quantify historical market events.

Over the last decade, there have been 17 instances where the Nasdaq has risen 10 percent or more in one month. Some of the best and most reliable performers during such a rise have been chipmakers Micron Technology, Nvidia and SanDisk. They fall hardest when the Nasdaq is tumbling, and they also rebound hardest.

Chinese ADRs included in the Nasdaq 100 index also rebound hard when NDX is moving higher. Search engine Baidu and online travel company Ctrip.com have soared nearly 23 percent and 18 percent on average, respectively, when the index climbs 10 percent or more in a month.


Ironically, though, technology is not the best performing S&P sector when the Nasdaq 100 is rallying. Materials see the biggest gain, up more than 11 percent on average, followed by consumer discretionary, industrials, financials and technology.


Finally—two assets you may want to avoid are gold and the dollar index. If history is any guide, they may underperform when the NDX is rebounding. Considered safe-haven plays, they often fall out of favor when investors are buying technology.


Technology has had a rough ride over the last few months. But if you think the recent rebound is just heating up, these historical plays could prove profitable.

DISCLOSURE: NBC Universal, the parent company of CNBC, is a minority investor in Kensho.