The potential for further technological stock declines has been highlighted as the Nasdaq 100 recently indicated a technical “sell,” says Katie Stockton of Fairlead Strategies. In a Monday note, she observed that the Nasdaq 100’s weekly moving average convergence-divergence (MACD) indicator displayed a “sell” signal last Friday.
Technical “Sell” Signal Warns of Further Declines in Tech Stocks
This change suggests a decrease in momentum and the possibility of several weeks of corrective activity, at a minimum. Investors are advised to closely monitor key support levels and prepare for potential heightened volatility in the tech sector during this period. Furthermore, Stockton recommends cautious positioning and diversification into other sectors for those seeking to minimize the potential negative impacts of these market shifts.
Challenging Month for Stocks and Upcoming Nvidia Earnings Report
The sell signal arises amid a challenging month for stocks, as the Nasdaq 100 has experienced a 6% drop in August. This occurs shortly before a crucial earnings report from Nvidia. Furthermore, investors are showing signs of caution as they anticipate potential shifts in the market due to ongoing global economic concerns.
The upcoming Nvidia earnings report, coupled with the Nasdaq’s downward trend, may serve as a bellwether to determine the trajectory of technology stocks in the near future.
$1 Trillion AI Chip Sector Anticipation
Investors eagerly await a substantial increase in the AI chip sector for the chip giant, valued at $1 trillion, which will disclose its results after the market closes on Wednesday. The rapid expansion of artificial intelligence technology across various industries has significantly boosted the demand for advanced AI chips.
As a result, the upcoming revelation of the company’s performance could potentially influence the value and trajectory of the market, making it a critical moment for both investors and stakeholders in the AI chip sector.
Key Support Level for Nasdaq 100 and Potential Decline
Stockton highlights 13,834 as a critical support level for the Nasdaq 100, indicating an additional 6% potential decline from current levels. If this level is breached, it could potentially trigger a significant sell-off, causing further market instability. Investors are encouraged to closely monitor market trends and consider this possibility when making investment decisions.
Rising Interest Rates Put Strain on Tech Stocks
Rising interest rates have also placed a strain on tech stocks this month, as the 10-year US Treasury rate hit its highest level since 2007. This rate increase has led to investors reallocating their funds from the riskier technology sector to more stable fixed-income investments. As a result, tech companies may face challenges when raising funds while also experiencing a decline in the value of their shares.
Monitoring Macroeconomic Indicators and Diversification
Should interest rates continue to increase, tech stocks might face ongoing pressure. As a result, investors should closely monitor both macroeconomic indicators and individual companies’ performance within the sector. Diversifying one’s portfolio with investments in other industries may also be a prudent strategy to navigate potential market volatility.
Market Correction Presents Buying Opportunity
However, Stockton ultimately perceives the recent downturn in stocks as a buying opportunity, asserting that the corrective period should offer favorable conditions for purchase. Additionally, she recommends investors closely analyze these discounted stocks to identify potential long-term value. By taking advantage of this market correction, savvy investors can acquire high-quality assets and enhance their portfolios through strategic buying decisions.
Frequently Asked Questions
What is the technical “sell” signal for tech stocks?
The technical “sell” signal refers to the Nasdaq 100’s weekly moving average convergence-divergence (MACD) indicator, which has recently shown a “sell” signal. This change implies a decrease in momentum and the possibility of several weeks of corrective activity in the tech sector.
What should investors do amid the “sell” signal?
Investors are advised to monitor key support levels and prepare for potential heightened volatility in the tech sector. They also need to adopt cautious positioning and diversify into other sectors to minimize the potential negative impacts of these market shifts.
Why is the upcoming Nvidia earnings report important?
The upcoming Nvidia earnings report, coupled with the Nasdaq’s downward trend, may serve as a bellwether to determine the trajectory of technology stocks in the near future.
What is the key support level for Nasdaq 100?
The key support level for the Nasdaq 100, according to Stockton, is 13,834. An additional 6% potential decline from the current level could trigger a significant sell-off if this support level is not maintained.
How do rising interest rates affect tech stocks?
Rising interest rates can strain tech stocks, as investors tend to reallocate their funds from the riskier technology sector to more stable fixed-income investments. This shift may lead to challenges for tech companies when raising funds and a decline in the value of their shares.
What should investors do amidst rising interest rates and market volatility?
Investors should closely monitor macroeconomic indicators and individual companies’ performance within the sector. Diversifying their portfolio with investments in other industries may also help navigate potential market volatility.
Does the market correction present any opportunities?
Yes, Stockton perceives the recent downturn in stocks as a buying opportunity, asserting that the corrective period should offer favorable conditions for purchase. This presents a chance for savvy investors to acquire high-quality assets and enhance their portfolios through strategic buying decisions.
First Reported on: businessinsider.com
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