Trading Nation

One of the best performing tech stocks this year is setting up for a bigger breakout, says Oppenheimer technician


Trading Nation: Buy the tech bounce?

A broad technology recovery rally is lifting the markets, but some stocks could run ahead of the rest.

Ari Wald of Oppenheimer pegs as a leader in any tech sector recovery.

"Buy the leadership in Salesforce," Wald, head of technical analysis, told CNBC's "Trading Nation" on Monday.

Salesforce proved resilient to a broader market sell-off in February, though it suffered alongside tech in March. While the has receded nearly 9 percent from its 52-week high in January, Salesforce climbed from those levels to notch a new high on March 14. Its 52-week high came a few sessions before the tech sector began its descent.

"We see that as a sign of relative strength," said Wald. "Investors [are] less willing to give up on their Salesforce stock on the consolidation."

The cloud software developer has rallied close to 15 percent this year, far better than the XLK technology ETF's 1 percent rise. The S&P 500 is negative for the year. In Tuesday's premarket, Salesforce was up 1.5 percent as tech stocks continued their gains from Monday.

Salesforce's relative strength index, a measure of overbought conditions, has tumbled from 78 in mid-March to 48 in April. A reading below 30 indicates oversold territory.

Wald is confident the entire tech sector can sustain a rebound after heavy sell-offs in recent weeks. The sector has been under pressure since mid-March as Facebook tanked following a privacy scandal. The XLK technology ETF has dropped 5 percent since that scandal broke.

"We're positive on the sector and think tech is carving out a base here ahead of what we think is going to be an extension of its longer-term rally," said Wald.

The first signs of a rebound began Wednesday, Wald said, when the XLK ETF surged more than 1 percent.

"There was a bullish engulfing day," he said. "The SPDR XLK opened at a new low, then closed above the prior day's action. That's a signal that selling is getting exhausted. We think it's marking a near-term trading low."

Max Wolff, chief economist at The Phoenix Group, is not as confident in this bounce's longevity given the number of unknowns circling the sector. Increased scrutiny from Washington is one of the biggest hurdles for the tech group, he said.

"There's a pretty good chance that there gets to be more than a little bit of tumult on this flight as regulations and privacy shift," said Wolff. "The space is just seeing the basic rules get rewritten. That's very rarely good."

The sharp sell-off since mid-March could give the tech space a short-term bump, says Wolff.

But, "probably long term it's got some weakness here," he added.

The XLK ETF added 0.8 percent on Monday, though it remains on the edge of correction territory having dropped 9.5 percent from its 52-week high set on March 13. The ETF fell 4 percent in March and is down more than 1 percent this month.