Tech just had its best day of the year, but don't trust the bounce

The tech sector saw a substantial bounce Monday, with the S&P 500 information technology sector closing 1.66 percent higher for its best day of the year. But tech stocks aren't necessarily out of the woods just yet.

To see why, just look at a chart of the S&P 500, and compare that to what you see on a chart of the tech sector ETF (XLK), or the Nasdaq 100 ETF (QQQ). The overall S&P broke decisively to a new high Monday. Meanwhile the QQQ is still 2.5 percent below the record high hit two Fridays ago, and the XLK is nearly 3 percent below its high.

That's why I'm not as impressed with the tech bounce as some others seem to be. Tech stocks are still just bouncing around within a range. The sector isn't seeing the same strength as the broader market, and if we see the high-performance group start to roll over, we're going to have a problem.

After all, the tech group has obviously been the key leadership group so far this year. Any further breakdown in the group in the near future would raise some concerns for the rest of the market.

To be sure, the stock market looks great on many levels. The Dow Jones industrial average and S&P 500 at all-time highs. And the Nasdaq composite and Russell 2000 are not far behind.

But here's my point: With the market contending with falling rates in the credit markets, the plethora of weaker-than-expected economic data, the cracks in the tech stocks and the slightly more hawkish Fed, the upside potential from here might not be as great as some of the bulls would portray.

The future is looking brighter Monday. But if the XLK and QQQ fail to recapture their momentum, it's going to be tough for the broad market to keep rallying.


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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

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