Tech stocks that led the markets on the way up have been slowing down.
The tech-heavy Nasdaq 100, which holds Apple and Microsoft, has bucked the pandemic sell-off, but after climbing 8% this year, the index began to lag the broader S&P 500 this week. It was pointing down again in Thursday's premarket.
"The Nasdaq is clearly a casualty of the sector rotation this week and normalization. Remember that it has benefited most from the stay-at-home, so that premium is just simply coming out. So technically, this market ran into a gap resistance from Feb. 21," Blue Line Capital President Bill Baruch said Wednesday on CNBC's "Trading Nation."
"But here's the bigger picture: We now have a golden cross — the 50-day moving average is moving above the 200-day moving average — and this is bullish," said Baruch.
A golden cross suggests a positive trend reversal — the shorter 50-day moving average shows increasing upside momentum as it moves above the longer 200-day.
"I am worried about a continued uptick in U.S.-China frictions. This makes me very cautious at the elevated levels, but I see strong support down at $220," said Baruch.
A decline to $220 implies 4% further downside before bottoming. The QQQ ETF, which tracks the Nasdaq 100, is up 5% this month.
Mark Tepper, president of Strategic Wealth Partners, is still bullish on tech, though says a pullback does make sense.
"We've been overweight tech for a while [but] a lot of these high-flying tech stocks have needed a breather. I mean, the thing is up 8% year to date, up over 30% off its low," Tepper said during the same segment. "You've got China tensions which are flaring up, so mean reversion is normal and healthy. But I think people need to keep this breather in perspective. What hasn't changed is the fact that digital transformation has been greatly accelerated, and that's still where you want to be."
Tepper said he is using pullbacks to add to positions. In particular, he likes stocks in cloud computing, virtual desktop software and work-from-home technology.
"Stick with those themes and I think you're going to be happy," said Tepper.