BofA strategists say tech stocks are flashing a bearish warning

The tech-heavy Nasdaq Composite is inching higher, chipping away at the losses incurred during Friday’s plunge, but the index may not be in the clear.

The Nasdaq 100 is flashing bearish signals, Bank of America technical strategists warned on Monday. They cautioned clients that headwinds are mounting, saying it’s time for investors to start managing risk of a pullback.

“The NDX rally extended slightly beyond expectation, breaking above 30,000. The trend became stretched relative to our measured move targets,” the strategist said, explaining that the 14-week Relative Strength Index (RSI) reached overbought levels and turned down, forming a bearish engulfing week.”

The strategists flag 28,567, or a decline of about 3% from Tuesday’s levels, as the next key level to watch since it would mark a new four-week low and signal a retest of 2025 highs ahead.

Chip stocks have led the rally, but technicals signal the group is overbought, suggesting a period of higher volatility. The flagged the VanEck Semiconductor ETF as an example of overbought conditions in the space.

With the ETF’s “relative strength index” weakening below a key level, the analysts say that history shows the chip sector could be headed for greater volatility and an eventual deeper correction.

Bank of America added that the technical analysis supports their call for investors to start playing defense, as the risk-reward balance is turning less positive.