Tech stocks are having their worst week of the year amid growing trade tensions.
Despite the 3% decline in the sector, it is still the best performer in the S&P 500 this year, with big names like Apple, Microsoft, Cisco, IBM and Oracle rallying 20% or more.
Mark Newton, technical analyst at Newton Advisors, says this is as good as it gets for the sector and the next move is down.
"In the near term there are definitely signs of technology starting to peak out," Newton said Wednesday on CNBC's "Trading Nation." He added that the RYT equal weighted technology ETF relative to the S&P 500 "for the first time all year has broken a pretty meaningful uptrend line going back since September."
"This should spell at least a near-term change of direction where we can see some rotation out of technology further, particularly as you approach the summer months," said Newton.
The semiconductor stocks, one of the largest tech subgroups, have already shown signs of deterioration, he said.
"Similar to what's happened with tech, this was actually the sector that peaked out initially back in the latter part of April," he said. The SMH semiconductor ETF "got down under a level near $113.50, that is bearish near term. To really show signs that this is a short-term pullback and we can get back to highs, we almost need to get back over $117.50."
The semiconductor ETF would need to rally nearly 5% to get back above Newton's key level at $117.50. It broke below that price at the beginning of the month.
"Semis are starting to roll over. Technology is definitely showing some outflows," said Newton. "For me that signals people are exiting technology and it's really not the right place to be."
Quint Tatro, managing director of Joule Financial, said that weakness in the large-cap tech names means investors need to be selective.
"It's … hard to totally avoid the sector. They are going to have the greatest growth, the best margins, and in certain instances, phenomenal balance sheets," Tatro said on the same segment. "It's why we like Twitter, for example, here."
Twitter has lagged the rest of the social stocks this year, climbing just 13% compared with a 28% increase in Facebook shares and 54% gain for Snap. The fundamentals should support a catch-up here, Tatro said.
"Look at the cycle that we're coming into with the election and what we believe will be an incredible boost to ad sales on the Twitter platform. It's what's talked about constantly," he said. "We think they're going to be a huge [beneficiary] of the ad spend and we think this is a good place to put some money in the tech sector that still has growth at a reasonable price."
