Trading Nation

Billions have been wiped from the tech sector this week. Here's how to protect yourself from more pain

Despite recent volatility, tech stocks are still flying high

Tech stocks are at their most expensive in nearly a decade even after a brutal week in which billions were wiped from the sector. There's still some value to investing in the sector, says one trader.

"Despite the recent weakness here, I still think strong growth is going to occur in the tech sector," Phillip Streible, senior markets strategist at RJO Futures, told CNBC's "Trading Nation" on Wednesday. "It will continue to outperform the broad market here."

There are some strategies to employ for the investor worried a rocky couple of days could stretch into weeks, says Streible. One way to play any further weakness would be to "scatter out protective puts" in the broader market — any more losses in tech would expose overall weakness in the total market, he says.

"By having those protections in place you're really going to protect yourself on the downside," said Streible. "Worst case, tech continues to rally on, the puts go worthless and you're long one of the outperformers in the market."

Tech stocks tumbled this week after privacy concerns led to regulatory scrutiny for Facebook. The social media platform is embroiled in a scandal in which data analysis firm Cambridge Analytica harvested Facebook user information to employ in President Donald Trump's 2016 presidential campaign.

Facebook shares have tumbled 10 percent since Monday and are on track for their worst weekly performance in four years. The stock is in bear-market territory, having fallen nearly 30 percent from a 52-week high set on Feb. 1. A fall of more than 20 percent is indicative of a bear market.

David Seaburg, head of sales and trading at Cowen & Co., is not long Facebook in the wake of the scandal and says the company faces a real "trust issue" that could take time to fully play out.

"On earnings it probably does have an impact, not a material impact, so therefore I don't think the wheels are going to fall off the truck," Seaburg told "Trading Nation" on Wednesday. But, "the sentiment has shifted completely in the stock, so I think that you have to be very cautious."

On the tech sector as a whole, Seaburg is also expressing caution, especially given valuations. The XLK Technology ETF trades at 17.7 times forward earnings, above the 16.9 times multiple on the S&P 500. Certain names are even higher: Alphabet trades at 25 times forward earnings and Adobe at 33 times.

"You're better off sort of taking a wait-and-see approach," said Seaburg. "You could see some either profit-taking or money come out of tech into some more industrial names or financials."

If tech continues its pullback, Seaburg does see value in some sector names. He says he would consider buying, Micron Technology and Amazon on any weakness.

The XLK ETF is on track for weekly losses of more than 3 percent in what would be its worst week since the market sell-offs of early February. The information technology sector remains up nearly 6 percent in the year to date, making it the top performer of 2018.