UK Markets open in 46 mins

Tech just had its best day of the year, but don't trust the bounce

Matt Maley
Tech just had its best day of the year, but don't trust the bounce

The tech sector saw a substantial bounce Monday, with the S&P 500 information technology sector closing 1.66 percent higher for its best day of the year. But tech stocks aren't necessarily out of the woods just yet.

To see why, just look at a chart of the S&P 500 , and compare that to what you see on a chart of the tech sector ETF (XLK ), or the Nasdaq 100 ETF (QQQ ). The overall S&P broke decisively to a new high Monday. Meanwhile the QQQ is still 2.5 percent below the record high hit two Fridays ago, and the XLK is nearly 3 percent below its high.

That's why I'm not as impressed with the tech bounce as some others seem to be. Tech stocks are still just bouncing around within a range. The sector isn't seeing the same strength as the broader market, and if we see the high-performance group start to roll over, we're going to have a problem.

After all, the tech group has obviously been the key leadership group so far this year. Any further breakdown in the group in the near future would raise some concerns for the rest of the market.

To be sure, the stock market looks great on many levels. The Dow Jones industrial average and S&P 500 at all-time highs. And the Nasdaq composite and Russell 2000 are not far behind.

But here's my point: With the market contending with falling rates in the credit markets, the plethora of weaker-than-expected economic data, the cracks in the tech stocks and the slightly more hawkish Fed , the upside potential from here might not be as great as some of the bulls would portray.

The future is looking brighter Monday. But if the XLK and QQQ fail to recapture their momentum, it's going to be tough for the broad market to keep rallying.