Nasdaq 100: Tech Stocks Resilient Despite Oil Volatility Spike

Stocks Dip Monday but Wall Street Isn’t Buying the Bearish Case

The Dow Jones Industrial Average lost 83 points Monday, or 0.2%. The S&P 500 shed 0.4% and the Nasdaq pulled back 0.6%. Considering what happened over the weekend, the selling was remarkably contained.

The U.S. fired on and seized an Iranian-flagged cargo ship in the Gulf of Oman on Sunday. Trump threatened to destroy Iranian power plants and bridges if a deal isn’t reached. Iran declined to join a second round of peace talks and the ceasefire expires this week. West Texas Intermediate crude jumped 5% to above $88 per barrel. Spot Brent crude climbed 5% to above $94. That’s a serious escalation by any measure and the market barely moved.

The reason isn’t hard to find. Traders came into Monday sitting on all-time highs after the S&P 500 gained 4.5% last week and the Nasdaq posted its 13th straight winning session, a streak not seen since 1992. That kind of momentum doesn’t reverse on a single headline. The market has already been through the worst of the Iran fear trade and recovered. Pricing in a worst-case scenario from here requires traders to believe this time is different. Most of them don’t.

Software stocks actually moved higher. The iShares Expanded Tech-Software Sector ETF gained 0.6%. That’s not a market pricing in disaster.

The earnings story is what’s keeping bulls in control. The S&P 500 has real fundamental support underneath it right now and that gives the market insulation against geopolitical noise. Valuation expansion and earnings growth are the two engines driving this rally and neither one has stalled.

The Strait of Hormuz is still the variable nobody can fully price. Traffic was restricted again by Saturday despite Iran’s earlier declaration that it was open. Trump says the blockade stays until Iran meets U.S. demands. That standoff isn’t resolved and oil knows it.

Technical Analysis

Technically, Nasdaq Composite (IXIC) is edging lower at the mid-session. The market took out Friday’s low early, making 24519.51 a new minor swing top. This was the first swing top in a week. It’s too early to tell if it means anything, but we’re keep an eye on the chart pattern since conditions can change quickly especially since we are approaching the end of the ceasefire between the U.S. and Iran. It will be interesting to see if the war resumes because the recent price action and the all-time highs in the Nasdaq and S&P 500 (SPX) indicate that investors think it’s over.

A trade through 24519.51 will signal a resumption of the uptrend. There is no resistance so all we can watch is price action and chart patterns. If we make a new high then I’ll start watching for a closing price reversal top.

On the downside, a test of the old top at 24019.99 could bring in some buyers, but a breakdown under it could mean that there are some new longs trapped near the record high. That will become significant if the weakness persists and they are forced to liquidate. Again, it’s something to watch for if the old top fails as support.

The short-term range is 22795.82 to 24519.51. If heavy selling begins and 24019.99 fails as support, then our first 50% target will be 23657.67. If there is a total collapse due to a war escalation, then we could see gains wiped out down to a 50% level at 22604.88, a 50-day moving average at 22587.73 and a 200-day moving average at 22523.00.

Don’t fight the trend and don’t try to pick a top, but if you see a dramatic closing price reversal top then consider taking profits.

More Information in our Economic Calendar.