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What history says about tech’s next move

Bespoke's Paul Hickey puts the tech stock slide into perspective
Bespoke's Paul Hickey puts the tech stock slide into perspective

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.

A historical perspective on the Nasdaq slide
A historical perspective on the Nasdaq slide