Market Uncertainty in the Technology Sector

Recent market conditions have introduced uncertainty regarding the sustainability of the technology sector’s bullish trend, according to analysts at BTIG.

The September selloff has contributed to this uncertainty, with tech stocks experiencing significant declines and technical indicators suggesting potential weakness in the sector’s relative strength.

While analysts suggest a short-term tactical rebound may be possible, there are growing concerns about whether the technology sector can maintain its leadership position for the rest of the year.

BTIG analysts observe that the tech sector’s performance has closely mirrored broader market trends in recent weeks. A pullback to around 5400, as previously predicted, has occurred, raising the possibility of a tactical low.

However, the outlook remains cautious, as further declines could still occur. “It is widely known how September is typically a tough month, but often times it’s the back-half that is weak,” the analysts stated.

Some of this expected weakness may already be reflected in current prices, potentially setting the stage for a relief rally later this month.

The tech-heavy QQQ index, tracking the Nasdaq 100, is approaching a critical juncture, with the 200-day moving average (DMA) acting as a key support level.

BTIG suggests that a potential test and reclaim of this 200 DMA could signify a tactical low for the technology sector, providing a short-term boost to the market. However, this rally could be fleeting if broader structural concerns about the sector’s relative strength remain unresolved.

“Absolute prices aside, technology’s relative trend is in question having broken below both its August lows and the spring highs. This is a bigger story for the rest of the year, in our view,” the analysts remarked.

This decline illustrates the sector’s underperformance compared to other market segments, especially as leading tech companies have struggled to sustain their earlier momentum. This is evident with Microsoft (NASDAQ:MSFT), which has shown relative weakness and is testing its 200 DMA. Conversely, Meta (NASDAQ:META) has maintained its resilience, exhibiting strength near resistance levels.

The analysts also highlight a shift in market sentiment, marked by a re-inversion of the VIX curve, a common gauge of fear. While not at levels that typically signify a durable market bottom, the rise in volatility indicates that fear is creeping back into the market.

BTIG believes this could lead to another tradable low but emphasizes that the overall market environment remains fragile. While the “Mag 7” stocks—large-cap tech companies such as Microsoft, Meta, and others—have held key support levels relative to the broader S&P 500 index, this group appears more bifurcated than in previous periods.