The Tech Sector is Turning: Is it Time to Buy?

Technology stocks have fallen heavily in the US with the sector down over 30 per cent and many stocks that are household names have technically crashed since the start of this year. Meta or Facebook as we know it, is down over 70 per cent, Netflix is down over 50 per cent, while Alphabet, formally known as Google, and Amazon are down over 33 per cent just to name a few.

What’s happening in the Australian tech sector?

The Australian technology sector has followed the US, as it is down over 30 per cent since 1 January. Appen is the worst, as it is down over 70 per cent, Xero is down over 45 per cent while Altium is down over 24 per cent and Wisetech, which is fairing the best, is down just over 4 per cent. The question remains as to whether the fall in technology stocks is over or should investors brace for more downside.

After reaching an all-time high of 2,450 points in August 2021, the technology sector (XIJ) fell to a low of 1,242 points in June of this year. This represents almost a 50 per cent fall over 10 months, which means investors have suffered heavy losses although the news is not all bad. The XIJ has very strong support just above 1,200 points and so far, it has continued to hold above this level.

As the XIJ is up just under 3 per cent in October, it is possible that the Information Technology sector is turning the corner and will be more bullish moving forward. While it is time to start looking at stocks in this sector, I recommend investors be very selective because while the sector as a whole may start to move up, there may still be some downside for a number of stocks before they turn to rise. My pick for stocks to watch include Altium, Wisetech and Xero.

What were the best and worst performing sectors last week?

The best performing sectors included Utilities up 5.56 per cent followed by Industrials up 3.87 per cent and Consumer Discretionary up 3 per cent. The worst performing sectors included Materials down 0.86 per cent followed by Energy down 0.37 per cent and Consumer Staples down 0.35 per cent.

The best performers in the S&P/ASX top 100 stocks included Evolution Mining up 15.47 per cent followed by Northern Star Resources up 12.19 per cent and Vicinity up 10.48 per cent. The worst performing stocks include Medibank Private down 20.40 per cent followed by Ampol down 11.75 per cent and Whitehaven Coal down 10.20 per cent.

What's next for the Australian stock market? 

October has been a good month for the All Ordinaries Index with our market up 4.41 per cent. While on the surface this rise may seem great, it only occurred in the first few days of this month. Since then, we’ve experienced large swings, both up and down, as the market continues to be indecisive.

Last week, the All Ordinaries Index traded up early during the first four days only to close well off the high for the day, while on Friday it fell nearly 1 per cent indicating the indecision is still very present. It’s like day traders are locking in profits near the end of the day because they lack the knowledge and/or confidence as to what the market will do the next day.

The bulls have moved the market up to its highest point in over a month and it seems they are slowly gaining traction. While the market closed down on Friday, it was an up week, therefore, I expect it will most likely continue its cautious movement up this week. If this occurs, the probability of a sustained rise over the coming months is much higher. While I don’t like to be a doomsayer, we still need to exercise caution as the market has been prone to do the unexpected over the past couple of years. As such, we still need to assume that the low of 6,581 points from June may be challenged.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the bestselling and award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.