Tech Stocks Rebound, but Can It Last?: Chart

Tech recovers, but watch these warning signs.
By Gary Morrow ,

Thursday's broad selloff was particularly felt in the tech sector. The Nasdaq Composite Index fell more than 2.1%, the biggest drop of the majors. The XLK (Select Sector Technology Index) finished the day with a 1.8% loss. Here's a look at the chart of this widely followed tech fund. 

The XLK is rebounding nicely as the week comes to a close. Considering the damage from Thursday's selloff, a follow-through move Friday would not have been a surprise. Instead, its clear this index is still range bound and is continuing to attract attention near the 50-day moving average. This key indicator helped the XLK bottom in April and early June. Until the 50-day is clearly broken, investors should remain positive on the index.

That being said, there are warning signs building. A rather ominous high may be forming as heavy resistance near the $58.00 area has held the last three weekly highs. It may be quite difficult to clear the July/August highs without a deeper pullback. If the 50-day can hold into next week there may be solid-enough footing underneath for a run to new highs. If the 50-day fails, we will know that the heavy supply near the highs is in control and a deeper fade is on the way.

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This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.

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