Technical view: Nasdaq stumbles, hinting at a potential near-term top

Long-time bulls should certainly have their guards up after today’s price action...

Downtrend 2

For over a year now, the big technology stocks that make up the Nasdaq 100 have been essentially a one-way trade to the upside, and any traders betting against that trend have been run over. Despite that backdrop, today’s price action is certainly ringing some alarm bells, at least in the short term, for Nasdaq 100 bulls.

Midway through last month, things were looking up: The Nasdaq 100 had just broken out to a fresh record high above $337 after finding support near its 100-day EMA in late March, and earnings expectations were high for the big tech behemoths that drive the index. Though we ultimately saw the four biggest holdings in the index (Appl, Microsoft, Amazon, and Alphabet/Google, together accounting for more than 33% of its value) crush analysts’ earnings estimates, those stocks generally saw only a lackluster reaction to the bullish fundamental news.

From a technical perspective, the Nasdaq 100 spent the last two weeks consolidating right at the previous highs as traders fought over whether the long-term uptrend could extend further. Today’s big bearish move has provided at least a short-term answer: No.

April’s “fakeout breakout” was also accompanied by a bearish divergence in the 14-day RSI indicator, showing declining buying pressure despite the modest new high in the underlying index price. This development suggests that the index may be ripe for a deeper retracement before fresh buyers can be found. Looking at the chart below, the Nasdaq 100 has already fallen below its 50-day EMA, opening the door for a continuation down toward previous-resistance-turned-support near $324.25 or the 100-day EMA near $320 next.

Source: TradingView, StoneX

A sustained break below that rising support line, if seen, would mark a change in the character of the established uptrend and could have longer-term bearish ramifications for the widely-followed index. Either way, long-time bulls should certainly have their guards up after today’s price action unless and until the Nasdaq 100 is able to definitively clear overhead resistance near $340.

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