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These charts show tech could soon enter a correction, but technician welcomes it

Monday’s tech bounce was a relief for investors after a volatile week for the sector, but Carter Worth’s charts suggest that the good news could be short-lived.

Despite a modest advance Monday, the tech heavy Nasdaq 100 is down 4 percent from its high last month, and the Cornerstone Macro technician is making the case for another 5 percent drop to come.

On a chart of the Nasdaq 100-tracking ETF (QQQ), comprised of large tech stocks, Worth pointed out Friday on CNBC’s“Options Action” that the QQQ had recently broken out of a channel, and that’s usually a sign that a fall is to come.

“What history does tell us often is that if you do overshoot the top, you often will check back,” he said. “What’s happening is the check-back is underway. We’re down some 5 percent from the peak, but we’re not quite back to the channel here … so I think there’s another 3 to 5 percent to go,” Worth said.

What’s more, Worth also points out that the QQQ has been exhibiting what is called a “head and shoulders top,” a pattern that technicians believe is bearish, along with an uptrend line which the ETF has bounced back to repeatedly over the past year. This leads Worth to believe that the QQQ will once again fall to that line.

The drop could actually take the QQQ back to the 150-day moving average for the ETF, says Worth. “[I think] that we get back to the 150-day moving average, which would imply another sort of 5 percent,” he said. “[A drop like that] would represent a peak to trough decline of about 10 percent.”

But in the end, Worth emphasizes that such a sell-off is actually “normal, and that it would be welcome.”

The QQQ is still up almost 17 percent year to date, thanks to the tech rally.

Source: Investment Cnbc
These charts show tech could soon enter a correction, but technician welcomes it

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