Technology stocks have jumped off the rails. The sector has gone from leader to laggard, with the tech-heavy NASDAQ in correction mode.

Wall Street has generally turned bearish, with the major indices sharply off their recent highs. It begs the question among value investors: have the pessimists gotten carried away? Let’s weigh the market’s strengths and weaknesses, and pinpoint the best opportunities amid the wreckage.

After the historic rebound on Monday, stocks closed in the red on Tuesday, in yet another turbulent trading session. The main U.S. indices fell as follows: The Dow Jones Industrial Average -66.77 (-0.19%); the S&P 500 -53.68 (-1.22%); the tech-heavy NASDAQ -315.83 (-2.28%); and the small-cap Russell 2000 -29.48 (-1.45%). In pre-market futures trading Wednesday, stocks were attempting a comeback.

The cryptocurrency sector has crashed as well. Since their all-time highs in early November, cryptocurrencies in aggregate have lost a whopping $1.35 trillion in value globally, roughly 50% of the total market. The crypto calamity underscores why I prefer investments in the “blockchain” (the computing infrastructure that enables crypto), as opposed to the coins themselves.

Read This Story: The Smart Way to Play The Crypto Craze

Overall earnings growth among S&P 500 companies remains strong, but its slowing pace is feeding investor anxiety. Earnings growth deceleration is most pronounced in the technology sector.

What’s more, under an environment of higher interest rates, future earnings will be worth less and debt burdens will be more expensive to service.

Accordingly, the world’s largest and best-known tech stocks are down more than 10% from their latest three-month high. Even tech companies that delivered strong Q4 2021 results and raised guidance for the year have seen their shares slump, as the chart shows:

The global microchip shortage, increasing scrutiny from regulators, and looming interest rate hikes are the major culprits weighing on tech companies.

Semiconductor stocks have been leading the NASDAQ lower. On Q4 earnings calls, a growing number of tech executives are citing shortages of materials and labor, and extra supply chain costs, as negative factors.

However, despite very real headwinds, it appears that investors have been overreacting. The economic expansion remains on track and the Federal Reserve has given no indication that it will become excessively assertive in tightening.

For Q4 2021, S&P 500 companies on average are reporting earnings 5.4% above expectations, compared to a long-term average since 1994 of 4.1% (as of January 25, according to research firm Refinitiv).

Keep in mind, we’re enjoyed an exceptional winning streak. The S&P 500 rose 27% in 2021, its third straight year of gains. The index posted its sixth best performance last year in more than 30 years.

The S&P 500 last year never posted a pullback in excess of 5%. Even if you factor in the decline of January 2022, the S&P 500 still hovers at twice its level in March 2020. Stocks have been pricey, especially in the tech sector, and they’ve been due for a pull-back.

Given the recent valuation compression in tech despite continued solid fundamentals, a greater number of individual names are now trading at more attractive risk/reward balances. If the overall market during the coming months is able to hold up in the face of rising interest rates, we should see a better environment for the tech sector into the end of the year.

I also view the slide in cryptocurrencies and other exotic investments as a positive phenomenon, because it removes speculative froth and reflects a return to rationality. I view some of these investment fads (e.g., non-fungible tokens) as worse than risky. They’re Madoff-style Ponzi schemes.

If you’ve been following my advice (take profits from overvalued momentum stocks, elevate cash levels, increase your exposure to hedges, etc.) then you’ve been able to substantially mitigate the pain of recent days.

Will bargain hunters jump into the markets and push indices back into the green? Or are we witnessing the start of a protracted decline? Only fools try to time the market. But caution should be your watchword. For a trading methodology that provides big gains but also mitigates current risks, click here.

John Persinos is the editorial director of Investing Daily.

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