Don't buy this dip: Several signs suggest there's more pain ahead for tech stocks

By Tomi Kilgore

The Nasdaq's previous drops below its 50-DMA have presented buying opportunities, but the charts show that this time looks different

Thinking of buying the dip in technology stocks? The Nasdaq Composite's technical outlook suggests don't do it - at least not yet.

When someone says things are different this time, Wall Street has a tendency to be skeptical, because market trends often last longer than expected.

While it may be too soon to say the longer-term uptrend in technology stocks is over, at the very least, there are a number of technicals that are saying don't buy the dip - even though that strategy has worked multiple times this year, and as recently at last month.

The Nasdaq Composite COMP isn't a perfect proxy for technology stocks but it's pretty close, as the tech sector carries a 64.9% weighting in the index as of Friday. Despite the Nasdaq's big bounce back on Thursday, its chart suggests the worst has not yet been seen.

On Friday, the index sank 2.1% to close at a one-month low, and suffered its biggest weekly loss in four months.

Craig Johnson, chief market technician at Piper Sandler, didn't go so far as to say "it's different this time," but he did note why this time is not the same as previous pullbacks. He said he's seen enough overall deterioration in the market to believe the intermediate-term trend is weakening.

"I'm not rushing to buy on the dip right now," Johnson said in a phone interview with MarketWatch.

The Nasdaq closed at 26,140 on Friday, below its 50-day moving average of 26,631, according to FactSet data. Many chart watchers view the 50-DMA as short-term trend tracker, so closing below it suggests the trend is now down.

But that's not a new development: The chart above shows that has happened multiple times before, without derailing the longer-term uptrend. The most recent time was last month, when the Nasdaq closed below the 50-DMA on back-to-back days, then surged to a fresh record close just three sessions later.

One big difference is that the previous dips below the 50-DMA actually produced points on a uptrend line that started at the nearly eight-month low hit on March 30. Trend lines take on more technical meaning when they have at least three points on them.

The drop below the trend line, as shown in chart above, is another sign that the current selloff is different than the more recent ones.

Piper Sandler's Johnson also highlighted that the index's chart depicts that those who bought tech stocks after the Nasdaq's breakout to the late-September and early-October record highs got duped.

Johnson wrote in a note to clients that the fact that the Nasdaq dropped below last week's low, and the support level that helped propel the index to its early-October highs, created a "'false breakout'-to-new-highs pattern."

While that by itself doesn't reverse the primary uptrend, "it does suggest a near-term consolidation/pullback is likely," he said.

Another technical reason that current market conditions aren't the same as during the Nasdaq's September and July dips is that market internals are so weak, Johnson added.

He noted that based on his trend work, fewer than 27% of stocks were in weekly uptrends, while his firm's 26-week new highs and 40-week "Technique" indicators remain at yearly lows and in intermediate-term "sell" positions.

And FactSet data show that even though the Nasdaq hit a record high last week, and was just a little over 5% below that level, the number of stocks on the Nasdaq exchange that have hit 52-week lows has outnumbered those at 52-week highs for 35 consecutive days. That's the longest such streak since a 43-day run that ended on April 22, 2025 - when the Nasdaq was 19.2% below its then-record close reached four months earlier.

"This is a market with a weak trend, weak breadth and weak participation," Johnson said.

The next key moving average to keep an eye on, which the Nasdaq hasn't breached since March, is the 200-DMA, which many view as a dividing line between longer-term uptrends and downtrends. The 200-DMA currently extends to 24,919, according to FactSet data, which implies 4.7% downside from Friday's close.

-Tomi Kilgore

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10-16-26 1658ET