Tech stocks have been leading the charge higher over the past several weeks, but there are some warning signs that suggest that these stocks may be getting tired. While many stocks remain in healthy uptrends, some have experienced reversals on high volume that reek of distribution, which occurs when institutions selling their holdings (or "distribute") to retail traders. While an occasional distribution day is actually healthy for a stock, persistent distribution is the signal for aggressive traders to "get out of dodge".


F5 Networks (Nasdaq:
FFIV) has been one of the strongest stocks this year, and remains in an uptrend on most time frames. However, the recent selling in October has taken on a sense of urgency, as FFIV dropped more than 10% in a few days. Volume was also up sharply; in fact, it was the highest trading volume of the past several months. While it is still much too early to assume FFIV has topped, the high volume reversal has greatly increased the odds that FFIV will at least enter a lengthy consolidation. FFIV is currently pausing near its 50-day moving average and appears to be rolling back over. This could lead to an eventual retest of the $80 level.


Akamai Technologies
(NasdaqGS:AKAM) is another stock that has been experiencing some distribution. Notice the subtle shift in its volume pattern over the past few months. Trading volume increased on the weaker days, while dying down as it traded higher. AKAM reversed from the $50s and is churning under its 50-day moving average. While technically speaking AKAM is testing a support level, the odds are favoring another move lower.


Citrix Systems (Nasdaq:CTXS) has also experienced some urgent selling recently. CTXS had a strong breakout in late July as it cleared a solid base it had been building for most of 2010. The breakout held well above its initial gap, and CTXS continued to rally over 20 points in total. However, the recent selling volume in CTXS has dwarfed the breakout volume, and couldn't really be classified as profit taking. This type of selling often takes time to be absorbed, and even though CTXS will likely hold on to its original breakout, it may take some time to repair the recent damage.


Much like CTXS, (NYSE:CRM) has seen its recent selling volume dwarf the volume accompanied by the breakout in late August. CRM has basically rallied from its 2009 breakout area near $34 to current levels without any major corrections. There have been a few two- to three-month pauses, but it could be time for CRM to pause. The recent selling occurred on the highest volume since its rally began and that is usually a pretty obvious warning sign. CRM is consolidating under its 50-day moving average and also testing an uptrend line that has held for several months. Traders should focus on these two areas in the immediate future to see if CRM can transition to a sideways consolidation, rather than a deeper correction.


Bottom Line
While all of these stocks remain in a technical uptrend when viewed on longer term charts, the recent selling should not be dismissed. It takes time for stocks to absorb institutional selling pressure, and despite overall market strength, it appears that some of these stocks still have much consolidation ahead of them before attempting to resume their uptrends. Traders should monitor not only the important support and resistance levels left behind by the recent selling, but also volume patterns to see if traders begin to show less urgency on weak days, and more aggression on stronger days. The markets are in a constant state of rotation, and it could be that these tech stocks are ready to take a breather.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Chart Advisor

    These Oil & Gas Stocks Have Reversed

    It's been a long downtrend for oil stock owners, but there's hope. These four oil and gas stocks have reversed and may keep trending to the upside.
  2. Chart Advisor

    4 European Stocks to Consider Buying

    European companies, listed on US exchanges, that are providing buying opportunities right now.
  3. Chart Advisor

    ChartAdvisor for October 2 2015

    Weekly technical summary of the major U.S. indexes.
  4. Investing

    How Diversifying Can Help You Manage Market Mayhem

    The recent market volatility, while not unexpected, has certainly been hard for any investor to digest.
  5. Technical Indicators

    Why MACD Divergence Is an Unreliable Signal

    MACD divergence is a popular method for predicting reversals, but unfortunately it isn't very accurate. Learn the weaknesses of indicator divergence.
  6. Chart Advisor

    Expecting a Big Breakout In These 4 Stocks

    These stocks are tightly wound following big moves, and upon breakout more big moves could ensue.
  7. Chart Advisor

    Trade Base Metals With These 3 ETFs

    News out of Alcoa is causing active traders to turn toward base metals for opportunities. Before diving into the market, check out the charts of these three ETFs.
  8. Charts & Patterns

    The Importance Of Tracking The Whisper Number

    Don't let the name fool you: Whisper numbers are making themselves heard. Here's why you should be paying attention.
  9. Chart Advisor

    Stocks With Buy Signals in a Bear Market

    The short-term trend may be down, but these stocks are showing strength to the upside.
  10. Chart Advisor

    ChartAdvisor for September 25 2015

    Weekly technical summary of the major U.S. indexes.
  1. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  2. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  3. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  4. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  5. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  6. How do you know where on the oscillator you should make a purchase or sale?

    Common oscillator readings to consider making a buy or sale are below 20 or above 80, respectively. More aggressive investors ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!