Chart analysts see danger ahead as tech comeback starts to lose steam

Published Mon, Mar 27 20231:15 PM EDTUpdated Mon, Mar 27 20232:23 PM EDT

The recent comeback in technology stocks is beginning to lose its luster, and that could mean trouble for the broader market. Technology stocks have been on a tear since the start of 2023 as investors dip back into the sector following one of the most difficult years on record, with the tech-heavy Nasdaq Composite and S & P 500's information technology sector up about 13% and 17%, respectively. The sector got another round of support in recent weeks as yields tumbled , bank collapses rattled the broader market, and investors searched for stocks with strong cash flows and balance sheets to weather a potential downturn. .IXIC YTD bar Nasdaq Composite so far this year But despite the recent bounce in shares, chart analysts see the sector retesting some key levels of resistance, which could end in a breakdown for the broader market. Jonathan Krinsky, BTIG's chief market technician, highlighted several reasons for concern in a Sunday note to clients. Since February's 2023 high, technology is the only S & P 500 sector with a gain, putting the sector and the Technology Select Sector SPDR ETF (XLK) back near resistance levels — and in line with relative performance back to its 2021 highs, he noted. "We think the clock is ticking on tech's absolute and relative performance, and expect it to catch-down to the rest of the market," Krinsky wrote. He also highlighted that the Nasdaq's cumulative advance-decline line and percentage of stocks above the 200-day moving average has fallen since February's peak — another sign of waning outperformance. Three stocks — Apple , Nvidia and Microsoft — in recent weeks have also grown to more than half of the XLK's weighting, which could prove problematic given the downside risks, he added. XLK 1M mountain Technology Select Sector SPDR ETF's performance over the last month Some chart analysts also think the Nasdaq 100 index is testing some key levels of resistance, even though some potential positives linger ahead. Bank of America's Stephen Suttmeier noted that the Nasdaq 100 stalled last week near its February high at 12,881. That's created a resistance range between 12,881 and 12,944 and a first support level within the 12,466-12,400 range. While the stalling poses some concerns about the Nasdaq's continued strength, "holding this area would favor more near-term upside beyond resistance into the 13,000s," he wrote. Suttmeier also sees promise in the fact that the Nasdaq has held support within range of its 11,695 mid-March low and 12,000. "If the NDX continues to hold this support, the US equity market can stabilize and build a bigger base," he wrote. — CNBC's Michael Bloom contributed reporting.