Bears continued to press on Wednesday, sending the Nasdaq 100 to its third consecutive closing loss, states Jon Markman, editor of Strategic Advantage.
The benchmark finished at 14,867, a decline of 1.4%. The Nasdaq is now 400 points from its intraday high on Friday when it tested the March 2022 high.
I wrote last week that on paper bears completed a successful one-day reversal, a technical trend killer. These patterns involve rallies to a relative new high, then a violent reversal lower. To gain momentum, I surmised that bears would need professional investors to begin culling some of the artificial intelligence me-too, story stocks.
As much as investment strategists want to pretend that Advanced Micro Devices (AMD) is a serious AI competitor to Nvidia (NVDA), this is simply not so. AMD shares peaked at $132.83 on June 13, the day executives introduced a chipset to compete with the vaunted Nvidia H100. The stock closed Wednesday at $112.11.
Executives at many firms are playing up corporate AI strategies. Most of these will fail. Unfortunately for bears, the best AI stories are still in great shape, and they hold massive weightings in the NDX. Culling pretenders is not really a bad thing, unless the selling spreads to leaders like Nvidia and Microsoft (MSFT). That is not currently true.
The NDX has support at 14,775, then 14,546, the rising 20-day moving average. Bulls may now be conceding a decline to the lower level; however I expect they will regroup there and set the foundation for a big summer rally.
The NDX Loop: No new recommendations at this time in our proprietary market timing system. The Loop netted members 16.5% in its last three-week effort. Next play coming soon.
Behind the Headlines: The Nasdaq Composite dropped 1.2% to 13,502.2, while the Dow lost 0.3% to 33,951.5. Technology and communication services led the decliners among sectors, down 1.4% each, while energy saw the biggest gain. Breadth favored decliners five-three. There were 282 new lows vs 59 new highs.
Longtime members will recall that TransDigm is one of my favorite stocks over the past decade. It supplies aerospace parts and subsytems to the aerospace industry and has what amounts to a monopoly in many key components and processes.
Last week, the Federal Open Market Committee left its benchmark lending rate unchanged at 5% to 5.25%, following a series of rate increases, but raised the median rate outlook for 2023 through 2025.
"Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year," Powell said Wednesday before the House Financial Services Committee. "We will continue to make our decisions meeting by meeting, based on the totality of incoming data and their implications for the outlook for economic activity and inflation, as well as the balance of risks."
Markets are currently pricing in a 72% chance that the FOMC will raise interest rate by 25 basis points next month, according to the CME FedWatch Tool. The remaining odds are for the rate to hold steady.
