The strange reason to avoid tech stocks this week

Buy tech after earnings season?

If you want to buy technology stocks, maybe you should wait two weeks. At least, that's what Societe General head of U.S. strategy Lawrence McDonald says, due to a somewhat strange market dynamic.

"What we're seeing is that during the blackout period around the time the companies issue earnings, companies can't buy back the stock. But in this quarter—after, say the 23rd of April—that's when they can again," McDonald said Wednesday on CNBC's "Trading Nation."

"So staying away during the blackout period has made a lot of sense, and buying the equities toward the end of the blackout period has also made a lot of sense, because you typically have substantial outperformance over the next 60 days of companies when companies come back and start buying back their stock," he said.

The market dynamic, which was also pointed out by Goldman Sachs in a note in March, is caused by an interesting legal condition whereby a company must avoid the appearance of trading on material nonpublic (that is, inside) information. If a company enacts discretionary stock purchases while it is in the possession of material nonpublic information, it may be guilty of insider trading.

This probably sounds slightly weird, since the company is "the 'ultimate' insider," as the law firm Skadden puts it in a legal primer on share repurchases. But clearly a company is in possession of more directly material and more literally nonpublic information when it knows its quarterly earnings numbers and has yet to report them. That's why discretionary purchases stop.

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And while these buyback blackouts are nothing new, McDonald notes that with more and more companies buying back massive amounts of shares even as overall volume falls, "this phenomenon is growing and growing bigger and bigger every quarter."

"Surfing out in front of these waves has been very profitable," McDonald said.

For those who want to trade around the buyback pause dynamic, McDonald recommends looking to the technology sector, and specifically the SPDR Technology ETF (XLK).

"The constituents in the XLK represent 22.5 percent of the , but 30 percent of the total capital S&P companies spent on buybacks," he wrote. That makes them the ripest for a buyback blackout-type play.

But Erin Gibbs, equity chief investment officer with S&P Capital IQ, is more skeptical.

"At least when you look at it in aggregate, on an ETF basis, we don't see that pattern for the entire sector," she said Wednesday. "Perhaps if you delve into certain types of companies that are buying back very specifically, but you can't just play it on a sector basis."

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