Market Overview

It Can Pay To Be Bearish On Tech

It Can Pay To Be Bearish On Tech

It is not surprising that one of the primary culprits for the current equity market correction is weakness in technology stocks. Technology is the largest sector exposure in the S&P 500 at 20.25 percent, or nearly 500 basis points above healthcare.

As history has previously shown, technology stocks can of falter greatly during bear markets or lead those declines outright.

What Happened

For the 90-day period ended Thursday, Dec. 20th, the Technology Select Sector Index (IXTTR) fell 4.30 percent, which is 200 basis points less better than the S&P 500's decline over the same period. Still, the Direxion Daily Technology Bear 3X Shares (NYSE: TECS) is on a torrid pace.

TECS, which tries to deliver triple the daily inverse returns of the Technology Select Sector Index, jumped almost 7% percent Thursday on volume that was nearly double the daily average. Thursday's surge for TECS boost's the bearish leveraged exchange traded fund's (ETF) one-week gain to almost 25 percent.

Why It's Important

The allure of TECS for risk-tolerant, short-term traders increases when analyzing some historical data points.

“Technology stocks, the favorites of traders during the record bull market, are typically the biggest losers, according to data from Kensho,” according to CNBC. “The S&P tech sector on average loses 20.3 percent, when the S&P 500 is down at least 20 percent. So it’s rare for the sector to skirt a bear market when the bigger benchmark is in a correction.”

Apple Inc. (NASDAQ: AAPL) and Microsoft Corp. (NASDAQ: MSFT) combine for 37 percent of index TECS delivers triple the daily inverse performance of. Apple resides nearly 33 percent below its 52-week high while Microsoft is 12.63 percent below its 52-week high.

What's Next

Entering Thursday, TECS was the tenth-best performer on a month-to-date basis among Direxion's inverse leveraged ETFs. TECS has also been among the issuer's most volatile bearish funds over the past month.

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