Nasdaq Index: Tech Stocks Reverse as Oil Spike Hits US Indices Today

Oil Takes Control and the Nasdaq Reverses Hard

U.S. stocks turned lower into midday Monday as June WTI crude oil pushed above $105 a barrel and Spot Brent crude cleared $114. The Nasdaq opened higher and reversed. The Dow is down roughly 400 points. The S&P 500 is churning between gains and losses. The record run from last week is getting tested and oil is doing the testing.

Technical Outlook

The Nasdaq Composite (IXIC) is in an uptrend. A trade through 25223.12 will signal a resumption of the downtrend.

The minor trend will change to down on a trade through 24491.83. Momentum will turn lower too. Taking out 24199.00 will reaffirm the minor downtrend.

The short-term range is 24491.83 to 25223.12. Its pivot at 24857.48 is the first target. The second short-term range is 24199.00 to 25223.12. Its pivot at 24711.06. With the main trend up, buyers are likely to return on a test of the pivot area.

The intermediate range is 22795.82 to 25223.12. If the two minor bottoms at 24491.83 and 24199.00 are taken out then look for the selling to extend into the intermediate retracement zone at 24009.47 to 23773.05.

The index is also tracking a pair of trendlines at 24727.50 and 23781.75. This helps determine the slope of the rally, which helps identify the strength. At this time, the index remains in a strong position relative to the trendline slope.

At the mid-session, the uptrend remains intact, but breaking the pivots at 24857.48 and 24711.06 will be the first sign of weakness. I will turn cautiously bearish if 24491.83 is violated.

Oil Is Running This Session

Missile reports out of the Middle East hit the tape and crude moved immediately. June WTI crude oil above $105 and Spot Brent above $114 is not a number that stays contained in the energy sector. I’ve watched this sequence enough times to know what happens next. Fuel costs rise, transportation margins compress, inflation expectations climb and the Fed stays put. Every one of those outcomes hits equities and they all hit at the same time when crude moves this fast.

The Strait of Hormuz uncertainty is what the market is actually pricing. Shipping route risk at that scale does not go away on a denial. Even unconfirmed headlines were enough to move oil today and oil moved everything else with it.

Strong earnings and recent record highs had built real optimism coming into this week. That optimism is getting tested right now by something no earnings model accounts for. Treasury yields are back in focus too. Oil running this hot keeps inflation expectations elevated and elevated inflation expectations keep yields from coming down. That is a second pressure point on equities that does not show up in the sector moves but shows up in valuations.

The Sectors Telling the Story

Energy stocks are the only clear winner. Everything tied to fuel costs is getting hit. Cruise operators are lower after one major player cut its outlook on surging fuel expenses. Transportation and logistics names are sliding. The Nasdaq reversed on chip stocks after a downgrade raised capacity concerns, which tells you the technology bid is not as unconditional as last week suggested.

On the positive side, a major corporate travel operator surged on a buyout announcement. Select biotech and semiconductor names posted gains on company-specific news. Crypto-linked stocks are higher on legislative progress. The winners today are stock-specific. The losers are macro-driven. That is an important distinction.

What the Dow Is Telling You

The Dow is down roughly 400 points and that is where the economically sensitive names live. When the Dow leads the losses it is telling you this is not a technology story or a sentiment story. It is a cost and margin story. Industrials, transports and consumer names that run on fuel are getting repriced in real time. That is a broader signal than a Nasdaq reversal on a chip downgrade.

Whether today’s pullback develops into something broader depends entirely on where oil goes from here. A credible de-escalation in the Middle East hands the bulls a session and this looks like a one-day reaction. Escalation extends the selling and the pivot levels in the technical section become the levels to watch. Upcoming inflation data and consumer spending reports will tell us whether higher energy costs are starting to show up in the numbers beyond the energy sector itself.

What I’m Watching

The pivots at 24857.48 and 24711.06 on the Nasdaq Composite are the levels that tell me whether this is a one-day reaction or something that develops into a broader pullback. Lose both and 24491.83 is next and that is where I turn cautiously bearish. Oil headlines are going to keep driving intraday moves. Any escalation in the Middle East extends today’s selling. Any credible de-escalation hands the bulls a session. Until one of those happens the message from this market is simple. Oil is in control and everything else is reacting to it.

More Information in our Economic Calendar.