After falling 30%, are tech stocks about to turn a corner?


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Technology stocks have fallen heavily in the US with the sector down over 30% 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 60%, Netflix is down over 50%, while Alphabet, formally known as Google, and Amazon are down over 30%, just to name a few.

The Australian technology sector has followed the US, as it is down over 30% since January 1.

Appen is the worst, as it is down over 70%, Xero is down over 45% while Altium is down over 23% and Wisetech, which is fairing the best, is down just under 3%. The question remains as to whether the fall in technology stocks is over or should investors brace for more downside.

asx australian sharemarket

After reaching an all-time high of 2450 points in August 2021, the technology sector (XIJ) fell to a low of 1242 points in June of this year. This represents almost a 50% 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 1200 points and so far it has continued to hold above this level.

As the XIJ is up over 4% 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 are the best and worst performing sectors this week

The best performing sectors include Utilities up over 4% followed by Consumer Discretionary and Communications Service, as they are both up over 3%. The worst performing sectors include Energy down over 2% followed by Consumer Staples down over 1% and Materials up just over 1%.

The best performers in the S&P/ASX top 100 stocks include Evolution Mining up over 10% followed by ARB Corporation up over 9% and Charter Hall up over 8%. The worst performing stocks include Medibank Private down over 18% followed by Ampol down over 11% and Whitehaven Coal down over 9%.

What's next for the Australian stock market 

October has been a good month for the All Ordinaries Index with our market up over 5% so far. While on the surface this rise may seem very good, 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 sentiment has continued to be indecisive, as if it's waiting for news to pick a direction.

This week the market traded up early on all four days only to close well off the high for the day, 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. Unless the market closes way down on Friday, I expect it will move higher into next 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 6581 points from June may be challenged.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.