• The Nasdaq 100 just flashed a technical “sell” signal ahead of Nvidia’s big earnings report, according to Fairlead Strategies. 

• The sell signal reflects a loss of momentum and suggests “several weeks of corrective action, at a minimum,” Fairlead’s Katie Stockton said.

• Stockton highlighted 13,834 as support for the Nasdaq 100, suggesting potential downside of 6%.

Technology stocks are poised for more downside after the Nasdaq 100 index flashed a technical “sell” signal, according to Fairlead Strategies’ Katie Stockton.

In a Monday note, Stockton highlighted that the weekly moving average divergence-convergence, or MACD, indicator for the Nasdaq 100 flashed a “sell” signal on Friday. It’s the first signal from the indicator since it flashed a “buy” signal on November 11.

The MACD is a trend-following momentum indicator that technical analysts use to show the relationship between two moving averages of a security’s price. A signal line is plotted, which can function as a buy and sell signal. Stockton uses MACD to capture momentum and trend across multiple timeframes. The indicator appeals because it’s very black and white, generating either a buy, or a sell.

“This [MACD sell signal] tells us that the market may consolidate for several more weeks… The setup supports several weeks of corrective action, at a minimum,” Stockton said.

The sell signal comes during a poor month for stocks, with the Nasdaq 100 down 6% in the month of August. And the signal comes just a few days ahead of Nvidia’s highly anticipated second-quarter earnings report. The $1 trillion chip giant reports results after the market close on Wednesday and investors are expecting a massive boom in its AI chip business.

Stockton highlighted 13,834 as a key support level for the Nasdaq 100, which represents potential downside of 6% from current levels.

Putting pressure on tech stocks this month has been a surge in interest rates, with the 10-year US Treasury rate trading to 4.35% on Monday, representing its highest level since 2007.

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“If we do see 10 year yields clear that 4.34% [level], the next resistance on the chart, which is the best way we have to understand upside, is about 5.25%, and that would be a near-term objective,” Stockton told CNBC on Monday.

Such a move higher in interest rates would only put more pressure on stock prices. But Stockton ultimately sees the current weakness in stocks as a buying opportunity.

“I think we see this corrective phase as just that, a corrective phase, something that should yield a buying opportunity. It comes at a very normal sort of seasonal time for this kind of volatility,” Stockton said. “The long-term momentum has gradually shifted to the upside this year, so I think we’ll at least have an opportunity to take advantage of that during Q4, even if it’s not long lived.”

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