Technology stocks sold off on Monday, with the Nasdaq teetering on a key technical support level as uncertainty over higher oil prices looks set to drive volatility in the days ahead.

The Nasdaq composite index <.IXIC> dropped 1.4 percent and closed just above its 50-day moving average, a widely followed technical level that if breached could signal more declines in the sector that has helped lead the market rally.

Wells Fargo downgraded the semiconductor sector, noting its strong upward moves. The PHLX semiconductor index <.SOX> has risen 130 percent since March 2009. The index also is up 45 percent since the start of September, while the broad S&P 500 has advanced about 25 percent in that period.

Also weighing on Nasdaq, communications equipment maker Ciena Corp forecast weaker-than-expected sales, sending its shares sliding 9.2 percent to $25.98.

Investors are jumping on an opportune seasonal slowdown that typically happens between March and July for tech, said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co. in San Francisco. It has been one of the leadership groups since August.

Brent crude has been on investors' radar as analysts and economists gauge how it might hurt economic demand if prices continue to rise. Crude edged lower on Monday after hitting its highest since September 2008 on conflict in the Middle East. Brent crude dipped 0.8 percent to $115.20 a barrel.

The Dow Jones industrial average <.DJI> dropped 79.85 points, or 0.66 percent, to 12,090.03. The Standard & Poor's 500 Index <.SPX> fell 11.02 points, or 0.83 percent, to 1,310.13. The Nasdaq Composite Index <.IXIC> lost 39.04 points, or 1.40 percent, to 2,745.63.

Wells Fargo said downgrading the semiconductor sector to market weight from overweight was an indication of a moderate though still optimistic view.

Even though gains in semis have outpaced the broader market, the S&P 500 and the semiconductor index have been moving in the same direction, which could mean further declines in the sector and spell more of the same for the overall market.

A 20-day correlation between the S&P 500 and the semiconductor index <.SOX> was at 0.92, with a reading of 1 suggesting a perfect correlation.

Tech has been a favorite of analysts, along with other cyclical sectors.

The CBOE volatility index <.VIX> rose 8.2 percent to 20.63. Joe Kinahan, chief derivatives strategist at TD Ameritrade in Chicago said investors were insuring against a possible fall below 1,300 for the S&P 500.

If we break this level the S&P could continue all the way down to 1,275. So many investors are trying to get ahead of this by paying up for portfolio protection in the form of index and equity options, he said.

Worries about the effects of recent higher oil prices on the economy have been a negative for stocks, but analysts recommend buying the energy sector.

Industrials are ultimately affected by energy prices, so a sector that works as a hedge would be the energy sector, said Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management in Champaign, Illinois.

Copper suffered its biggest one-day decline in nearly four months as rising oil prices and geopolitical instability fanned recovery doubts. That weighed on the materials sector. Freeport McMoRan Copper and Gold Inc fell 3 percent to $50.14.

The bearish views overshadowed enthusiasm about Monday's deal news.

Western Digital Corp jumped 15.6 percent to $34.68 after the world's No. 2 computer hard drive maker agreed to buy Hitachi Ltd's <6501.T> hard disk drive operations for about $4.3 billion in cash and stock.

Also, TomoTherapy Inc shot up 24.5 percent to $4.57 after Accuray Inc said it will acquire the smaller rival in the radiation oncology field.

Volume was about 7.92 billion shares on the Nasdaq, NYSE and AMEX, below the daily average of 8.47 billion for last year.

On the NYSE about three stocks rose for every one that fell, while on Nasdaq seven stocks rose for every two that fell.

(Additional reporting by Caroline Valetkevitch and Doris Frankel; Editing by Kenneth Barry)