Nasdaq 100, S&P 500 Smashed as AI Bubble Fears Run Risk Aversion

Nasdaq 100, S&P 500 Talking Points:

• Both the Nasdaq and S&P 500 are seeing sizable selling following Google earnings on Wednesday afternoon and then Intel and Amazon earnings yesterday. This echoes the fear from META earnings last week.
• While the AI trade has built handsome valuations that are historically high, there’s several other macro factors at play, such as the leverage from foreign markets like Japan and the continued pressure on inflation via oil taken from the Strait of Hormuz.
• The S&P 500 set a fresh ATH just a few weeks ago, but much has seemed to change in the time since.

Stocks are on their back foot and at this point, the weekly chart of both the S&P 500 and the Nasdaq are not pretty, and from this look, there’s an open door for bears to make a further run. The caveat here is that these weekly bars aren’t yet complete and if we do see a bounce into the close, which wouldn’t be too outlandish given the likelihood of President Trump pumping markets the weekend ahead of the election, that view can change.

But this has been building over the past few weeks as I’ve been covering in videos for StoneX, the most recent of which is linked below.

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S&P 500

At this point, the S&P 500 is testing a big spot of support taken from prior resistance, and this was the same resistance that held the highs from June through July, around the first FOMC meeting that Kevin Warsh presided over. This resistance was eventually broken after multiple topside tests following Warsh’s second rate decision and this showed as a key spot of support around his third meeting, when the Fed hiked rates and warned of another hike on the way.

S&P 500 Futures Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

The Leaders Up, the Leaders Down

Perhaps more worrisome is how some of the higher quality AI names are performing at the moment, with NVDA breaking below a big level at 210 and pushing below the support side of a rising wedge pattern. These are tracked with aim of bearish reversal, and the fact that sellers are making ground is not a positive for the stock.

This also points back to a bearish engulf that printed four weeks ago, which I highlighted in the StoneX video as a problem even given the ATH that had printed earlier that week, in NVDA, NQ and ES.

NVDA Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

Nasdaq

For the Nasdaq, it’s the failure from bulls that’s perhaps most perturbing, at this point, as the 30k level has been a hard line of resistance now for the past two weeks.

Similar to the above in NVDA, there was a rising wedge that was broken through although this happened a couple of weeks ago. And since then, sellers have been continuing the push.

I think the more compelling argument there is what might happen if we get oversold conditions on the daily chart – and whether that can bring more bears into the mix or whether that leads into an oversold bounce. We’re not quite there yet as RSI on the daily isn’t yet below 30, but with a few more days of intense selling that can happen.

For next levels down, there’s a confluent spot of Fibonacci levels at 28,310-28,391 and then, below that, the July swing low around 27,200. And if those get taken out, there’s the prior swing highs at 26,380 that held resistance twice and, as yet, haven’t been tested for support.

Nasdaq 100 Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro