The Nasdaq 100 showed a technical “sell” signal ahead of Nvidia’s big earnings report, according to Fairlead Strategies.
Fairlead’s Katie Stockton said the sell signal reflected a loss of momentum and suggested “several weeks of corrective action at least”.
Stockton highlighted 13,834 as support for the Nasdaq 100, which indicates a downside potential of 6%.
In a note on Monday, Stockton highlighted that the Weekly Moving Average Convergence-Divergence, or MACD, indicator for the Nasdaq 100 was flashing a “sell” signal on Friday. It is the first signal from the indicator since it flashed a “buy” signal on November 11th.
MACD is a trend-following momentum indicator used by technical analysts to show the relationship between two moving averages of a security’s price. A signal line is drawn that can act as a buy and sell signal. Stockton MACD is used to capture momentum and trend across multiple timeframes. the Cursor appeals because it’s very black and whitegenerates either buy or sell.
“This (MACD sell signal) tells us that the market may consolidate for several more weeks…the setup supports several weeks of corrective action, at a minimum,” Stockton said.
The sell signal comes during a weak month for stocks, with the Nasdaq 100 down 6% in the month of August. The signal comes only a few days ago Nvidia’s highly anticipated second-quarter earnings report. The $1 trillion chip giant reported results after the market closed on Wednesday and investors are anticipating a massive boom in the AI chip business.
Stockton highlighted 13834 as a key support level for the Nasdaq 100, which represents a potential 6% downside from current levels.
Pressure on technology stocks this month has been a rise in interest rates, with the 10-year US Treasury rate trading to 4.35% on Monday, its highest level since 2007.
“If we see 10-year returns clear that 4.34% (the level), then the next resistance on the chart, which is the best way to understand the uptrend, is around 5.25%, and that would be a near-term target,” Stockton told CNBC on Monday.
Such a move higher interest rates It will only lead to more pressure on stock prices. But Stockton ultimately sees the current weakness in stocks as a buying opportunity.
“I think we see this correction phase as just a corrective phase, something that should set off a buying opportunity. It comes at a very normal seasonal time for this type of volatility,” Stockton said. “The long-term momentum has gradually turned to the upside this year, so I think we’ll at least have an opportunity to take advantage of that during the fourth quarter, even if it doesn’t last long.”
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