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The carnage in the tech stocks has gotten so bad the sector is now set up for an oversold bounce – starting soon.
Technology stocks have been crushed over the past few weeks. For example, Micron (MU) – arguably the “most darlingest” of the tech darlings – is down 25% over the past month.
Sandisk (SNDK) is down 47%. And, IBM went from posting a new all-time high at the start of June, to hitting a new 52-week low just last week.
There is good news, though.
Look at this chart of the Bullish Percent Index for the Nasdaq 100…
As a reminder, a bullish percent index measures the percentage of stocks in a sector/index that are trading with bullish technical patterns. It is an indicator of overbought or oversold conditions, and since it is a percentage it can range from zero to 100.
For the Nasdaq 100, a BPNDX reading near 70 indicates an overbought condition. Readings near 30 suggest the index is oversold.
For just the third time over the past year, the BPNDX has dipped to 30 – indicating an oversold condition.
Yes, the BPNDX can go lower. During the “tariff tantrum” in April 2025, for example, the BPNDX fell below 5. For the most part, though, over the past three years BPNDX readings near 30 have tended to occur within just a few days of the start of a multi-session bounce.
Here’s how the Nasdaq 100 ETF – QQQ – performed following the previous oversold readings…
QQQ rallied 7% in three weeks off of oversold conditions last November. It rallied 20% in April.
Anything similar this time around could have the QQQ approaching new highs by Labor Day.
Of course, there’s no guarantee. We’re looking at just two previous examples. It is certainly possible the tech stocks could sell off even more before we get a bounce.
BUT…
Traders who have been waiting patiently for an opportunity to add exposure to the tech sector on a pullback now have the chance to do so. Technical conditions are oversold. Investor sentiment – a contrary indicator – is wildly bearish. And, the BPNDX is at a level from which previous oversold rallies have started.
At the very least we can say it’s far better to be buying into the tech sector today than it was one month ago. We probably won’t be able to say that one month from now.
Best regards and good trading,
Jeff Clark
Editor, Market Minute