What history says about tech’s next move

The recent decline in tech stocks likely points to further weakness in the short-term, but not a major bearish reversal, if history is any indication.

That's what Bespoke Investment Group co-founder Paul Hickey found when he dove into the historical data in a new report. Specifically, Hickey looked at prior instances of precisely what happened last Friday: The Nasdaq Composite touched a 52-week high and declined over 1 percent in the same day.

While some investors may look at the sell-off in tech last Friday — in which the tech sector saw its worst day of the year — as a sort of "turning point" in the market, such events are "not as rare as you might think," Hickey said Monday on CNBC's "Trading Nation."

Since 1988, Hickey in his research found 23 prior instances of such an occurrence. The most recent decline of that kind was back in March, and the "stocks pretty much bounced back nicely from there."

"The period where you tend to see the highest likelihood of weakness is over the following week, but then the month later you're getting back to your historical trends," he said.

"You tend to see some short-term biasness to the weak side, but not too much," Hickey said. "Overall, it's usually forgotten about over the intermediate-term."

What's most notable about this latest on Friday, Hickey wrote in his note to clients, is that the S&P 500 managed to hold up rather well despite the weakness in the Nasdaq. Of the 23 prior periods in which the same action in the Nasdaq occurred, Hickey found only five other instances in which the S&P 500 fell less than half of one percent.

"It's not necessarily common, but it hasn't been the mark of major turning point in prior instances. On average, we've had them a little more than once a year ... and I don't think you want to put too much weight onto that," he said.

According to Bank of America Merrill Lynch's June Global Fund Manager Survey, long Nasdaq was deemed the "most crowded" trade for the second straight month. The Nasdaq was trading slightly positive on Monday afternoon.

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more

Connect