Why I’m not getting worried about tech stocks — yet

The big tech high-flyers are getting hit hard. Netflix and Facebook dropped more than 4 percent on Monday, while Amazon slipped nearly 2 percent, and Alphabet and Apple gave up nearly 1 percent apiece.

While the big-tech-heavy Nasdaq 100 index fell 1.1 percent, the S&P 500 was only down 0.22 percent. This action would seem to indicate that the tech stocks are being used by investors as a source of cash to buy other groups, such as the energy sector, which rose 1.5 percent on Monday. The question is whether this “rotation” will become a much broader situation and whether it will soon include a lot more tech stocks.

This is when I would say that although several particular stocks are breaking down, the Nasdaq 100-tracking QQQ ETF is still above its key support levels. The 100-day moving average has been very good support for the QQQs over the past year, so it would have to break below that line before I’d raise a yellow warning flag on the broader group.

Just below that line is the August lows. If it broke below that line as well, which comes in near $141, it would certainly raise some concerns. But we’re not there yet.

What about the individual big tech stocks? Of course, just because they’re getting hit hard today doesn’t mean they’ll continue to fall from here, but they’re going to need to bounce back very strongly and quite quickly (that is, before the end of the week).

Needless to say, they’ve all had a very good run. Not a whole lot has changed fundamentally on most of these names, save the possible exception of Apple. However, after the big runs they’ve had, they sure seem to be good “sources of cash” for those looking to rotate into other groups that are beginning to break out.

Let’s take a closer look at Facebook. Monday’s steep decline has taken the stock below its 50-day moving average — which was key support in May, June and July.

Facebook has also fallen below the sideways trend-channel the stock has been in since late July. If the stock cannot bounce back very quickly and regain those support levels, the next key support level doesn’t come in until we get down to the July breakout level near $155. That’s about 5 percent below current levels.