Nasdaq 100: Strong Earnings Lift Early Gains Before Rising Bond Yields Trigger Pullback

Nasdaq Reverses Late as Yields and Oil Erase the AI Rally

The Nasdaq Composite Index closed the week at 26,225.14, down 21.93 points or 0.08%. Flat on paper. That is not what the week was. The index hit 26,707.14 mid-week. The Nasdaq-100 punched to a fresh record at 29,678.89. Then the 10-Year U.S. Treasury yield started running, West Texas Intermediate crude pushed higher on Middle East tensions, and Friday took most of it back. The weekly close is what goes in the books. The week itself is the story.

Technical Outlook

Weekly Nasdaq Composite (IXIC)

Following a prolonged move up in terms of price and time (6016.89 points in seven weeks), the tech-heavy index formed a potentially bearish closing price reversal top.

A trade through last week’s low at 25739.22 will confirm the chart pattern. This could trigger a 2 to 3 week break into the 50% to 61.8% retracement zone at 23698.70 to 22988.70, respectively.

If buyers return and take out 26707.14, the chart pattern will be negated and the uptrend will resume.

The major support and trend indicator is the 52-week moving average at 22354.32.

Weekly Nasdaq-100 Index (NDX)

The Nasdaq-100 Index posted a potentially bearish weekly closing price reversal top. A trade through 28628.64 will confirm the chart pattern this week. This could lead to the start of a 2 to 3 week correction.

The main range is 22841.42 to 29678.89. Its retracement zone at 26260.16 to 25453.33 is the primary downside target zone.

A trade through 29678.89 will negate the chart pattern and reaffirm the uptrend.

The index is well above the 52-week moving average at 24519.95. This is the major trend indicator. Since the long-term trend is up, investors are in “buy the dip” mode.

Keep in mind that a closing price reversal top is not a change in trend, but if confirmed, it will shift the momentum to the downside. The first leg down is likely to be fueled by long-liquidation and profit-taking.

Friday’s Selloff

The Nasdaq Composite dropped more than 1.5% on Friday. The names that pushed the market higher earlier in the week turned lower and selling picked up as the session went on. Profit-taking into a wall of yield pressure and energy inflation is not hard to explain. It is what the market does.

Healthcare and consumer staples held up better during the decline. When traders start rotating into those sectors on a Friday, they are not optimistic about what Monday brings.

Energy stocks got some support from higher crude oil prices but did not run with the tech sector during the early sessions. Financials and industrials lagged for most of the week. The rally continued sitting on a small base of large-cap technology names. That concentration is both the strength and the risk of this market.

AI Drove the Early Move

The week opened with money moving straight into artificial intelligence. I watched the earnings come in and the pattern was the same name after name. Beats on revenue, guidance that held up, and demand for AI software, cloud services, and advanced chips that showed no sign of slowing. Buyers did not need much more than that.

Cisco Systems was the clearest winner. Businesses are still spending on networking equipment and AI infrastructure and Cisco’s numbers made that case without any help from Wall Street spin. The stock jumped and pulled the broader tech sector with it.

Nvidia kept drawing buyers all week. That is still the first trade when you want direct exposure to AI spending and nothing last week changed that. Data center chip names posted strong early gains. Rackspace Technology surged on earnings. Innodata caught a bid. Investors were hunting for growth outside the mega-caps and smaller names tied to AI data services gave them somewhere to go.

The Invesco QQQ Trust stayed one of the most watched instruments all week. Semiconductor ETFs ran with the chip sector early. The money had a direction and it did not change until the fundamentals caught up with it.

Then the Other Half of the Week

Producer prices came in hotter than expected midweek. That was the first crack. Traders who had been sitting comfortably with rate cut expectations had to rethink that position fast. The Fed does not cut into a hot producer price print.

West Texas Intermediate crude kept climbing on Middle East tensions. The Strait of Hormuz is still largely shut and every session without a deal is another session of supply pressure getting added to the price. Higher crude feeds directly into inflation expectations. That is what pushed the 10-Year U.S. Treasury yield to its highest level in about a year and that yield is the most important number in this market right now for anyone holding growth stocks.

The way I see it, growth stocks price off future earnings. When the 10-Year U.S. Treasury yield runs like that, those future earnings get discounted harder. Expensive technology valuations do not hold up in that environment. That is what Friday was settling.

What to Watch

The two drivers that are unresolved going into this week are oil and yields. The Strait of Hormuz stays largely closed until a deal gets done between the U.S. and Iran, and right now that deal is not close. No deal means oil stays elevated. Elevated oil keeps the inflation picture hot and takes Fed rate cuts off the table. That combination keeps direct pressure on the 10-Year U.S. Treasury yield. Growth stocks, and technology specifically, do not perform well in that environment. That is the setup.

The level I am watching most going into Monday is 25,739.22 on the Nasdaq Composite. Buyers hold it and the setup stays neutral. It gives way and the correction the chart is already pointing at gets confirmed.

More Information in our Economic Calendar.