Market Insights

Bears hit the stock market last week as the Nasdaq-100 showed signs of a potential reversal.

The technology-heavy index fell 3.4 percent between Friday, November 8, and Friday November 15. It was the biggest drop since early September, erasing two-thirds of the previous week’s rally.

Chart watchers may notice the quickly rising trendline along the recent lows. Highs, in contrast, have occurred at a slower pace. That potential “ascending wedge” may show fading strength despite the advance. There might also be a “false breakout” after the index failed to stay above peaks in July and October. Both formations are potentially bearish reversal patterns.

Nasdaq-100, daily chart, with select patterns.

The Nasdaq could get a big test on Wednesday afternoon when Nvidia (NVDA) reports quarterly results. The semiconductor giant is the index’s second biggest stock by market cap and third-biggest gainer this year, according to TradeStation data.

Cuts Not ‘Preset’

The 10-year Treasury yield ended last week at its highest level since May. Similar increases, like early 2022 and mid-2023, have corresponded with declines in the stock market. (Higher rates tend to depress equity valuations and and reduce risk appetite.)

Strong economic data triggered some of the move in rates. Some of the numbers may even suggest that inflation is no longer slowing.

For example, the consumer price index (CPI) rose by 2.6 percent year-over-year in October. It’s up from 2.4 percent in September, representing the first increase in eight months. Shelter costs inched higher as well. Can inflation slow without a drop in its biggest component?

Retail sales for October beat estimates by a narrow margin. However, the revision to September showed twice the earlier growth. Initial jobless claims fell more than expected to their lowest level since May. The New York Empire Index of manufacturing also shot past forecasts to its highest level in almost three years.

“We [don’t] need to be in a hurry to lower rates,” Federal Reserve Chair Jerome Powell said in a speech on Thursday. He added that while policymakers want to ease, “the path for getting there is not preset.”

Distribution in Chips?

Semiconductor stocks fell almost 9 percent last week. Some of the weakness came from Applied Materials (AMAT), which issued disappointing guidance. The equipment maker also faces uncertainty about trade with China, echoing similar issues at peer ASML (ASML). Other chip stocks like Advanced Micro Devices (AMD) and Wolfspeed (WOLF) announced job cuts.

Monolithic Power (MPWR) was the biggest decliner in the S&P 500 last week. The provider of power-management systems rallied in early 2024 on hopes of AI demand, but has given back all those gains since late October.

Some investors may view the broad selling in chip stocks as a potential sign of distribution following years of outperformance. They may also notice that the Philadelphia Semiconductor Index hasn’t made a new 52-week high since the summer and could now be starting a potential triangle breakdown.

Philadelphia Semiconductor Index ($SOX), daily chart, with select patterns.

RFK and Hegseth

Health care stocks dropped 5.5 percent, their biggest decline since the overall market crashed in March 2020. The selloff came after President-Elect Donald Trump nominated Robert F. Kennedy Jr., a prominent critic of pharmaceutical companies, to run the Department of Health and Human Services. Vaccine maker Moderna (MRNA) was hit especially hard.

Military contractors like Amentum (AMTM) and Leidos (LDOS) fell after Pete Hegseth was selected to run the Department of Defense. Hegseth was a surprise because of his limited experience in the defense establishment.

Both Kennedy and Hegseth will require Senate confirmation before taking office in the future Trump Administration.

Precious metals also fell sharply as the strong economic data lifted the U.S. dollar. Physical gold prices had their biggest weekly drop in over three years.

Banks and Bitcoin

Banks, financials and energy eked out small gains last week as investors focused on stronger economic growth.

Walt Disney (DIS) was the biggest gainer in the S&P 500 last week thanks to strong results at its movie division. Streaming customers also increased more than expected.

Palantir Technologies (PLTR) surged to another record high and became the index’s top performer on a year-to-date basis after moving from the New York Stock Exchange to the Nasdaq. PLTR expects to be eligible for membership in the Nasdaq-100, which could trigger purchases by exchange-traded funds (ETFs) like Invesco QQQ Trust (QQQ).

Cryptocurrency-related stocks such as Microstrategy (MSTR) also rallied after Bitcoin passed $90,000 for the first time.

S&P 500, daily chart, with select patterns.

Charting the Market

All told, the S&P 500 slid 2 percent last week, its third decline in the last four weeks. Just two members rose double digits, while 26 fell at least 10 percent.

Some chart watchers may notice that the index quickly surrendered half its post-election gains. They may also worry about a “false breakout” if prices return below roughly 5,865. That level was near the October high and the low on November 6 (one day after the election).

Next, the advance/decline line failed to make a new high in almost a month. Wilder’s Relative Strength Index (RSI) also made a lower high. Those cases of “divergence” may reflect weakening strength in the upward move.

Interestingly, last week’s record high of 6,017 occurred just 10 minutes after the open on Monday morning. Does the lack of follow-through suggest a weakening uptrend?

The Week Ahead

This week brings a few important earnings reports and some economic numbers of medium importance.

NAHB’s homebuilder sentiment index is scheduled for today.

Walmart (WMT) and Lowe’s (LOW) issue results this morning. Housing starts and building permits are also due.

Wednesday morning features quarterly numbers from Target (TGT) and crude oil inventories. NVDA’s results after the closing bell may be the most important event of the week. Palo Alto Networks (PANW) also reports Wednesday afternoon.

Deere (DE) and Baidu (BIDU) report on Thursday morning. Initial jobless claims and existing home sales are also due.