BTIG Warns Tech Stocks Could Face Additional Downside After Momentum Unwind

The recent selloff in technology stocks may be far from over, according to BTIG chief market technician Jonathan Krinsky. The strategist believes the technology sector could still face another 9% to 10% decline, while semiconductor stocks may have as much as 14% to 17% downside before reaching more attractive technical support levels.

Krinsky argues that last week’s sharp correction was a natural consequence of extremely crowded positioning and stretched momentum conditions across the technology sector.

Extreme Technical Conditions Triggered the Pullback

According to Krinsky, the recent decline was not surprising given how extended technology stocks had become following months of strong gains.

He pointed to the Technology Select Sector SPDR Fund (XLK), which recently formed a negative outside week while failing to sustain new highs. Krinsky described this pattern as the opposite of the bullish price action seen in early April, which helped launch the sector’s powerful multi-month rally.

Before the selloff, the technology sector had reached an RSI reading of 82 and was trading approximately 28% above its 200-day moving average, levels that often signal overbought conditions.

Technology Sector Could Fall Another 10%

BTIG believes a return toward the 50-day moving average would represent a normal technical correction rather than a major breakdown.

Based on current market conditions, Krinsky estimates that such a move would imply roughly 9% downside from current levels for the technology sector.

While the recent decline has already erased some excess optimism, BTIG argues that further weakness may be necessary before the sector establishes a more sustainable base.

Semiconductor Stocks Face Even Greater Risk

The outlook for semiconductor shares appears even more challenging.

Krinsky noted that the iShares Semiconductor ETF (SOXX) still sits significantly above its 50-day moving average. A move back toward that level would imply approximately 14% to 17% downside, which BTIG considers a reasonable technical target following the sector’s strong rally.

Given the semiconductor industry’s central role in the artificial intelligence boom, the group has been among the market’s strongest performers in recent months, making it particularly vulnerable to profit-taking and momentum unwinds.

Momentum Stocks Suffer Historic Selloff

High-beta momentum stocks experienced their largest single-day decline since the COVID-19 market crash on Friday, falling roughly 9.5% to 10%.

BTIG believes the unwinding process may not be complete. The firm estimates that long/short momentum strategies could still face an additional 11% to 12% decline before market positioning fully normalizes.

The recent weakness suggests investors are rotating away from the market’s biggest winners and into sectors that have lagged throughout much of the year.

Healthcare and Financials Begin to Attract Buyers

While technology and semiconductor stocks remain under pressure, BTIG sees encouraging signs emerging in several overlooked sectors.

Krinsky highlighted healthcare and financial stocks, which ranked among the worst-performing sectors in the S&P 500 through early June, as beginning to break out from multi-month consolidation patterns.

Real estate investment trusts (REITs) and consumer staples have also shown improving relative strength as investors seek alternatives to crowded technology trades.

Sector Rotation May Continue

BTIG believes the extreme performance gap that developed between market leaders and laggards over the past several months is now beginning to reverse.

As investors continue reducing exposure to high-momentum technology stocks, capital may increasingly flow into defensive and value-oriented sectors.

According to Krinsky, the process of unwinding these historic market imbalances likely has further to run before broader market conditions stabilize.