US stock indices were mostly lower by Wednesday’s close, with only the Dow Jones Industrial Average managing to break even while the rest of the majors struggled. The NASDAQ bore the brunt of the selloff and was down nearly 2% at its lowest point.
Nvidia and Palantir dropped sharply, and this weighed heavily on other major tech stocks, with chipmakers taking the brunt of the selling. Amazon, Apple and Alphabet all dropped around 1%. Broadcom fell 1.3%, Intel tumbled 7% and Nvidia was volatile, down more than 3% at one stage. But equities found support just before the European close and managed to recoup a large chunk of earlier losses.
Nvidia ended close to unchanged. The bounce-back came even as the release of the minutes from the Federal Reserve’s July meeting added to investor caution. Policymakers expressed concerns about recent weakness across the labour market and stubborn inflation pressures. Notably, two Federal Reserve governors voted for a rate cut, which was the first such dissent since 1993.
Despite this, investors remain confident of a rate cut next month. According to the CME’s FedWatch Tool, the probability of a 25 basis point reduction in September remains above 80%, although down from 84% prior to the release of the Fed’s minutes.
US stock index futures had a negative bias in this morning’s early trade, indicating some nervousness ahead of tomorrow’s key speech from Fed Chair Jerome Powell on the second day of the Jackson Hole Economic Symposium.
Market volatility eased slightly overnight, with the VIX edging lower after a brief surge yesterday. The index spiked as tech stocks sold off sharply, but conditions became calmer as markets stabilised later in the session. The modest pullback leaves volatility still elevated compared to last week, reflecting an undercurrent of investor caution as earnings season winds down and attention turns to central bank commentary at Jackson Hole.
Source: TN Trader
The daily chart above is for the NASDAQ 100 (US Tech 100). The index has pulled back from the record levels hit last week, but the sell-off so far has been shallow, and as yesterday’s bounce showed, traders are still ‘buying the dip.’ This has proved to be a successful trading strategy for the best part of three years now. Will it continue to be?
One cause for concern is the negative divergence that has been building since May. This can be seen in the bottom panel, which shows the daily MACD. This shows a slowdown in upside momentum, even as the index hit a succession of fresh all-time highs.
While this doesn’t mean that the rally is over, let alone that the NASDAQ is about to have a significant correction, it is a warning that buying interest has waned even as stock prices hit all-time highs.
