Why it’s Time to Start Buying Technology Stocks

In recent months both the Australian and US tech sectors have been falling heavily. From August last year until two weeks ago, the Australian tech sector has fallen nearly 40 per cent, while the US technology sector is down over 20 per cent as of a few days ago. While these falls indicate that the technology sector in both countries has crashed, is it now time to buy or should you run for the hills?

Australian and US tech sectors both fallen heavily

It’s important to understand that just because one sector has crashed doesn’t mean that the overall market has crashed or will crash. In Australia, the technology sector fell 29 per cent between 1 January and 24 February, which would be considered a crash, while the All-Ordinaries Index has only fallen 2.67 per cent for the year to date. From 1 January to 14 March, the US technology sector fell over 19 per cent, while the Dow is only down 4.36 per cent and the S&P500 is down 6.36 per cent for the year.

The Australian stocks hit hardest since 1 January include Dubber and Praemium, which are both down around 50 per cent. Of the larger stocks, Appen is down 36 per cent, Xero is down 29 per cent while Altium is down 27 per cent. So has the Australian tech sector bottomed and is it time to look at these stocks for an opportunity to buy?

Last week the technology sector in Australia rose over 7 per cent, which indicates that it has likely bottomed or at the very least shown that the six-month downturn is very near its bottom. Given this, I recommend investors start to look at the tech sector with a view to entering some great stocks at very good prices.

That said, don’t blindly jump into any stock hoping to get in early, as you need to wait for confirmation that the stock has stopped falling. While the US tech sector has also risen strongly this week, investors would be wise not to jump in too early trying to grab a bargain, as it is yet to show signs that it has stopped falling.

What were the best and worst performing sectors last week?

The best performing sectors included Information Technology up 7.81 per cent followed by Financials up 6.07 per cent and Healthcare up 5.48 per cent. The worst performing sectors included Materials down 1.15 per cent followed by Energy up just 0.04 per cent and Utilities up 0.10 per cent.

The best performers in the S&P/ASX top 100 stocks included Block up 15.36 per cent followed by SEEK up 11.58 per cent and Atlas Arteria up 10.87 per cent. The worst performing stocks included IGO down 5.65 per cent followed by The Star Entertainment Group down 3.33 per cent and Newcrest Mining down 3.28 per cent.

What's next for the Australian stock market? 

The All Ordinaries Index showed some resilience last week and in a good sign rose to its highest level in the last four weeks and its highest weekly close since mid-January. While it is still too early to confirm if the market has bottomed and will start to rise, it is getting very close to that point. As such, I encourage everyone to remain patient until we see confirmation, as the streets are littered with losses from those who are impatient.

We still need to see the market rise above the high of 7,646 points before we can be confident it will move in a sustained uptrend. If the market falls away next week, it is still possible that the last few weeks have just been a pause in the downtrend. For those who remain patient and cashed up, you will be rewarded with some high-quality low risk trades in the not too distant future.

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 award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.