Nasdaq: Is the tech rally running out of steam?

The global tech sector has experienced a captivating rally over the past three months, as evidenced by the tech-heavy Nasdaq Composite Index surging nearly 30% year-to-date. This impressive performance stands in stark contrast to the previous year's decline of 34%. Notably, the Nasdaq has sustained six consecutive weeks of upward movement as of the first trading week of June.

The remarkable strength displayed by the Nasdaq Composite Index serves as a clear indication of the resurging confidence in the tech sector, fuelled by the rapid development in artificial intelligence (AI), despite the ongoing economic uncertainties.

However, a few early signs suggest that the sizzling heat throughout the tech sector may be starting to wane.

On Tuesday (June 7th), the Nasdaq experienced a notable setback, recording its largest one-day decline since May. In contrast, the Dow Jones, which had been trailing behind in 2023, outperformed with a 0.28% gain.

Additionally, several leading tech stars appears to have reached a critical turning point. For instance, Apple witnessed a more than 2% decline despite the release of its new "revolutionary" product, Apple Vision Pro, earlier this week. Similarly, the market darling Nvidia has fallen approximately 7% from its recent peak.

In contrast, the spotlight has notably shifted towards small-cap and mid-cap stocks, as suggested by the Russell 2000 index, which surged by nearly 8% within the first five trading sessions of June.

While it may be premature to conclude whether the recent tech-driven rally is nearing its conclusion, these early indicators suggest that a fundamental shift in market dynamics may be underway.

Nasdaq Technical Analysis

On the daily chart, the Nasdaq continues to trade comfortably above the 20-day moving average, currently around 14180, which can be seen as a crucial support level. Additionally, there is an ascending trendline connecting the highs from the end of 2022, which should offer further support at this level. While the overall bullish structure remains intact at the moment, it is worth noting that the index faces a significant obstacle at the key resistance level of 14599, which must be surpassed to sustain the upward momentum.

Russell 2000 Technical Analysis

Following a breakout from the recent consolidation band and the 50-day moving average, the price of the Russell index has shifted its focus towards the key level at 1893-1902. A decisive breakout above this level has the potential to reverse the bearish momentum that has persisted since 2022.

Conversely, if the price retraces, it is expected to find support around the 1833 level. This level is crucial for maintaining the current upward trajectory and preventing a deeper pullback.