S&P500 and Nasdaq Index: Tech Stocks Slump as Traders Reassess AI Leaders and Forecast Shifts

Markets Slip After Holiday Weekend as Investors Hunt for Safer Ground

The major U.S. stock indexes are lower on Tuesday after a long holiday weekend. The early price action suggests investors are in for another roller-coaster ride this week as they continue to search for companies dealing with more physical assets, while shedding virtual world stocks. However, early conditions look a little different with the Dow Jones Industrial Average also participating in the sell-off. If the blue chip Dow suddenly becomes the place not to place money, then we could have all three major indexes retreating at the same time with nowhere to place the money except outside of equities.

Three Big Questions Traders Are Asking This Week

Traders have a lot of questions this week, including where is value in the Nasdaq Composite Index, what’s the deal with the S&P 500 Index and the 7000 level, and can the old economy Dow really support the entire technology-driven economy?

Not All AI Stocks Are Created Equal

People have noted for years that the majority of the gains in the S&P 500 Index have been supported by a handful of stocks. We’ve even given them cute names like FANG (Facebook, Amazon, Netflix, Google). Now we’re looking at a tech sector that is unraveling because, in my opinion, investors may have thought that all AI-themed stocks were the same.

The Software Nobody Thought Could Be Replaced

Furthermore, some investors, comfortable with the software they used, would’ve never envisioned it being replaced by one AI model. Sure, AI was expected to replace employees, but software? Now comes the reality that yes, it could. Now the market has to price in the reality that profitable business models could blow up as AI expands its reach.

We’ve Seen This Movie Before

If you took the time to look back, you would’ve seen some of this taking place in the past. Palm Pilot, Blackberry — they were good, but they were taken out. Floppy disks and huge-capacity hard drives have given way to the cloud.

When the Tail Wags the Dog

My point is, we’ve seen these types of sector-driven corrections before, but they have been scarce. Most investors have gotten used to the broad-based indexes correcting overbought conditions. They are the dog. Now we have sectors and sub-sectors — the tail — wagging the dog. Not the other way around. We’ve seen one or two stocks destruct one sub-sector, then have that sub-sector weaken an entire sector, all the way down to the broad indexes.

The S&P 500 Is in a Technically Weak Spot

Technically, the S&P 500 Index (SPX) is in a weak position for a third session after breaking through to the weak side of the 50-day moving average at 6,893.79, which is now resistance.

“Buy the Dip” Could Work Again — But Don’t Count on It

Traders have seen this move before, at least four times, if you go back to the November 21 bottom at 6,521.92. They have become accustomed to buying the dip under the 50-day MA. It could work for a fifth time, but investing isn’t always about how high a market can rise — sometimes you have to think about how low it can go before new buyers arrive to save the day.

Three Levels Worth Watching on the S&P 500

One way to look at the S&P 500 is to see if it can recapture the 50-day moving average and turn momentum higher. Another approach is to wait for a test into the short-term value zone at 6,762.10 to 6,705.42. The third approach is to wait for the longs to be flushed out by heavy selling pressure down to the 200-day moving average at 6,510.99.

More Information in our Economic Calendar.