Nasdaq 100 Trade: Breakouts outperform again ahead of key events

Partial recovery led by tech favours the Nasdaq

Monday might have been a session to forget for the tech sector suffering losses of over 5% due to the fallout from China’s cost-effective DeepSeek AI model, but there was a partial recovery in store yesterday as (only) tech, communication, and consumer discretionary finished higher, just the trio needed to power the tech-heavy Nasdaq 100 to an outperforming finish (+1.6% to 21,463) when compared to the S&P 500 (+0.9% to 6,067), Dow (+0.3% to 44,850) and Russell 2000 (0.2% to 2,288). Shares of heavyweight (and Nasdaq 100 component) Nvidia jumped almost 9% to $128 undoing a chunk of Monday’s losses, still above Morgan Stanley’s latest price target which was lowered from $166 to $152 and where it kept its overweight rating. Cybersecurity stocks also rose following the AI drama with CrowdStrike up over 9% to $408 and Zscaler by 7% to $204.

As for economic data out of the US, there was plenty of it to digest with [1] CB’s consumer confidence dropping to 104.1 below 105 estimates, [2] durables for the month of December down 2% though excluding transportation up 0.3% with both below expectations, [3] home prices in November up 0.3% m/m (month-on-month) (FHFA) and 4.3% y/y (year-on-year) (S&P/CS) both hotter than anticipated, and [4] Richmon Fed’s manufacturing index improving from -10 to -4.

FOMC to hold on rates and earnings from a few of Big Tech

Market participants will continue to assess the latest factors on the AI front, and with earnings from a few of Big Tech will likely question some of their latest AI investments and whether their future pricing power will justify the reward in light of DeepSeek’s offering and cost-effective approach. Microsoft who earlier this year unveiled plans to invest $80bn on AI infrastructure this year, Meta last week following its $60-65bn investment plans, Tesla, IBM, and ASML are all expected to release their figures today. Apple is scheduled for tomorrow.

And if that wasn’t enough, there’s also the FOMC (Federal Open Market Committee) expected to hold on rates, at least that’s what markets (CME’s FedWatch) are pretty much fully pricing in with likelihoods of the first rate cut in 2025 likelier in the second quarter at this stage.

Nasdaq 100 Technical analysis, overview, strategies, and levels

Key technical indicators on the daily time frame are mostly neutral after price seemed to be thrown all over the place, at this stage above all its main long-term daily moving averages (MA) but not all of its short-term ones, a negative DMI (Directional Movement Index) with a decent margin for the -DI over the +DI, an ADX (Average Directional Movement Index) not in trending territory just yet, and an RSI (Relative Strength Index) very close to the middle. Most of its key technical boxes are neutral then and mixed where they aren’t, with an overview that was (prior to Monday’s plummet) and still is ‘consolidation – volatile’ where breakout strategies are in the conformist camp and reversal strategies are for contrarians. The former have outperformed so far, and with what’s in store on the fundamental front from today onwards combined with AI valuation volatility means it’ll remain in the conformist camp.

Looking at it from the weekly time frame and the overview is still ‘bull average’ with price working within a bull channel, the intraweek lows reaching this week’s 2^nd Support level before recovering to above the 1^st Support already triggering conformist buy-after-significant reversals yesterday and giving an initial win to contrarian sell-breakouts on Monday given buy strategies are in the conformist camp and sell ones for contrarians under the longer-term time frame’s different technical overview.

IG client* and CoT** sentiment for the Nasdaq 100

CoT speculators in the Nasdaq 100 have opted to raise their net long bias in coordination with the price gains made prior to the pullback (since positioning is as of last Tuesday), taking it from 54% to 58% on an increase in longs (by 7,150 lots) and a simultaneous reduction in shorts (by 1,972), with traders fixated on the next report release to see how they’ve shifted following the DeepSeek drama.

IG clients bought Monday’s dip in the US Tech 100 (and Nvidia as a single stock) taking their long bias to a heavy 65% yesterday, and the swift price gains that came after saw sentiment among them drop back down to a moderate 58% as of this morning.

Nasdaq 100 chart with retail and institutional sentiment

*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am for the outer circle. Inner circle is from the previous trading day.
**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.