Mar 22, 2016 ยท 4 minutes

It was only about a month ago that tech stock prices were falling so quickly, and with no single catalyst driving the industry downward, that many braced for the worst.

The Nasdaq Composite fell as much as 15 percent in the first six weeks of the year. The shares of many recent tech IPOs as well as smaller tech stocks facing uncertain prospects plummeted even more, losing more than half their values in a matter of weeks in some cases.

It was scary stuff, since little had changed in the outlook of consumer and enterprise technology. Instead, the bearishness spilled over from other markets: oil and other commodities, China and other emerging economies dependent on it, pretty much every asset available to the small investor except for gold and good old cash. Startups with unicorn valuations were looking at a drought in the IPO market and the threat, if not the reality, of declines in their market values if they sought private funding.

And yet five weeks after that low point, things don't look so bad anymore. The Dow Jones Industrial Average and the S&P 500 have both closed up for the year for the past two trading days, while the Nasdaq Composite is down a relatively modest 4 percent on the year. Many of the tech stocks beaten down the hardest are posting double-digit rebounds from their low points.

So severe were the declines in some cases that, once tech stocks started to rebound, many overlooked how strongly they were pushing back up. A post on Mattermark's blog last week, titled “The Rally You Probably Missed,” called attention to some of the more dramatic recoveries. Many of them have continued to rise since then.

Square has risen 66 percent from the low point it reached in February, while Etsy has risen 50 percent, Shopify is up 52 percent, Box up 43 percent, and Atlassian up 41 percent. All of these companies went public in 2015, an otherwise unmemorable year for tech offerings.

Other, bigger tech names have also rallied, but not nearly as much: Facebook is up 25 percent from its 2016 low, Twitter is up 21 percent, Amazon is up 17 percent, Apple up 15 percent and Alphabet up 12 percent. Even LinkedIn, which saw one of the hardest falls on its disappointing earnings guidance, has rebounded 17 percent.

All of this sounds pretty good, as if the worst is behind us, even. And one hopes that it is, that the headwinds from other regions and industries were abating, that the US economy — seven years after the last US recession — could still eke out a few more years of growth, and that investors remain cheery enough to overlook once again the high valuations that have long been part and parcel of tech growth stocks.

As nice as it would be if that were the case, there are reasons to think that we are instead in a classic bear-market rally, during which stocks not only bounce back, but the stocks that have fallen the hardest typically bounce back the most. One reason for this phenomenon is that investors who have been shorting less promising shares close out their positions, triggering short-term buying demand for them.

Another sign this may be a bear market rally is that, on the way down as well is on the way up, the technology sector has underperformed the broader market. The Nasdaq is still in negative territory. And as the chart below shows, the information technology sector of the S&P 500 fell harder than the S&P 500 Index itself and is only now catching up with it. No matter the long-term promise of Silicon Valley's innovations, investors are more likely to flee from the tech sector in times of uncertainty.

What's more, many of the biggest rebounders over the past month are still down significantly from a year ago, despite their recent gains. LinkedIn has lost 57 percent of its market value in the last 12 months, while Twitter is down 65 percent and Etsy is down 70 percent.

Stocks that are seen as technology leaders, meanwhile, have moved in the other direction. Facebook is up 42 percent while Alphabet is up 35 percent overthe past year. In a long-term rally, these kinds of industry leaders are the ones most likely to move higher first. That the opposite is happening may not be such a good sign.

While some of the culprits behind the global financial selloff in early 2016 are doing better, namely oil prices and Chinese stocks, there's little evidence that the fundamental concerns that drove them down in January and February have suddenly fixed themselves. The imbalance of oil supply against demand remains, as does the economic uncertainty facing China.

If these other markets start moving down again, it certainly won't spell doom for tech. In fact it may continue a much-needed correction in valuations and unrealistically high expectations for the near-term prospects of many startups. Startups like ZenefitsSpoonrocketLivingSocial and Rdio are grabbing some of the grimmer headlines, but other companies continue to raise modest rounds.

Still, it's quite possible that the short-term challenges that have vexed many startups over the past six months will continue for some time: namely, an IPO market that has all but frozen up and a new sense of satiation among cash-rich tech giants concerning acquisitions. So is the worst over? All indicators seem to be saying, not so fast.