Nasdaq Falls Into Correction After Its Worst Day in 19 Months

A Wild Week Ends With the Nasdaq in Correction

A one-sided midterm election outcome, fresh concerns about AI, and a better-than-expected jobs report were the fuel for a volatile week in the U.S. market. Stocks rallied on Wednesday, tumbled on Thursday, and mounted a partial recovery on Friday. The Nasdaq finished 3.4% lower for the week and the S&P 500 fell 2.7%.

Thursday’s 5.5% drop for the Nasdaq was its biggest daily decline in 19 months, and it sent the index into a correction, as it closed more than 10% below the record level that it set on October 6. On Thursday alone, the total market capitalization of the group of mega-cap stocks known as the Magnificent Seven dropped by more than $1 trillion.

For the first time since late 2022, quarterly earnings expectations for the Magnificent Seven group of mega-cap stocks are lower than forecasts for the rest of the 493 stocks in the S&P 500, according to FactSet. In the wake of mixed third-quarter reports from selected Magnificent Seven stocks, the group as a whole was expected to report a 22.6% growth rate overall for the quarter versus 32.6% for the other 493 companies.

Volatility Surges While Yields and Oil Retreat

It was a wild week for short-term U.S. stock market volatility. After ending the previous week at 19.4, the Cboe Volatility Index fell to as low as 16.6 following Tuesday’s midterm election. However, the VIX surged to 28.4 on Thursday, the highest in more than seven months. By Friday’s close, it had pulled back to 25.6 but was nevertheless up 32% for the week.

The yield of the 10-year U.S. Treasury fell for the fifth week in a row, extending a decline that left it at 4.86% at Friday’s close, below an early October peak above 5.30%. Yields of 2-year and 30-year Treasuries also declined, finishing at 4.52% and 5.26%, respectively.

The price of U.S. crude fell on Wednesday to around $88 per barrel, the lowest in more than two months, before creeping back up to around $90.50 on Friday afternoon. Overall, U.S. crude ended the week down about 12% as investors assessed the outcome of the midterm election and its potential impact on the Middle East conflict.

My Technical Read: How Far the Nasdaq 100 Has Fallen

The semiconductor and AI-laden Nasdaq 100 index, or NDX, has now dropped approximately 4,700 points, or about 15%, from the October 6 new all-time high at 31,361 to last Thursday’s spike low near 26,600. The S&P 500, or SPX, has dropped from its new all-time high near 7,844 to Thursday’s low at 7,350, or only about 6.3%.

Key SPX and NDX Technical Levels to Watch

Key technical chart levels to be aware of in the coming week are S&P 500 support near 7,315, 7,250, and 7,050. Nasdaq 100 support lies near 26,600, 26,200, 25,350, and 24,750. NDX resistance sits at 27,970-28,000 and 28,800-29,000.

In any case, as we always do at TheTechTrader.com, we’ll “Trade What We See, Not What We Think.”

— HARRY BOXER, THE TECHNICAL TRADER | www.thetechtrader.com