“Are you not entertained!” I yell at my screen all day Thursday as calamity and carnage crash into the tech sector. Holy smokes, what an absolute massacre of the AI bulls. I have been expecting weakness, but even I was amazed by the sea of red that showed up in tech on Thursday.
The wildest part of this whole sell-off is that it is almost entirely concentrated in AI tech. However, since AI tech names are now some of the biggest components of the SPY and make up roughly 35% of the QQQ (excluding AAPL, since it is not part of the hyperspender issue we are seeing), that weakness is having a major impact on the broader market.
QQQ Daily Chart
If you were long KRE, the regional banking ETF, you absolutely crushed it on Thursday. It has a very solid double bottom that just broke back above the 200-day SMA and is surging higher alongside the big banks (XLF). We also saw massive days in XLP (consumer staples), XLU (utilities), IYT (transportation), and XLB (materials). IWM essentially closed flat on the day, although it is still stuck firmly below the 200-day SMA. As long as it holds below that level, the door to another low is wide open.
KRE Daily Chart
SOXX, on the other hand, fell 6.79%, while MAGS dropped 3.35%. Fear is certainly here, but it is concentrated in one area of the market. That is another reason I don’t think the market is simply going to fall off a cliff and drop 20%. Money is rotating around, just as it has been since June 5, when the market dynamics shifted from a full bull market to a rotational bull market.
SOXX Daily Chart
Big Tech Is Just Above Key Support
I have been focused on some of these rotational moves lately, like XLU and XLF, but the big reason I generally focus on big tech is that it remains the main market driver. These are the companies that can make or break the market.
When I look at the tech charts right now, most are at or getting close to a fairly key support level.
NVDA is 4% away from its 200-day SMA.
GOOGL is 5% away from its $305 gap fill and horizontal support.
MSFT is 4% away from its horizontal support zone and AVWAP at $500.
AMZN is 4% away from its gap fill at $240.
TSM is just over 3% away from its 200-day SMA.
AVGO is 4% away from its 100-week SMA.
META hit its 100-week SMA and is less than 3% away from its long-term daily moving averages.
On the ETF side, we can see that:
SOXX pretty much hit its 200-day SMA on Thursday.
QQQ is just under 4% away from its 200-day SMA.
SPMO, the momentum ETF, is just 1% away from its 200-day SMA.
GOOGL Daily Chart
All this is to say that, despite the fear showing up in a big way, I think we are getting close to some kind of low in the market. Many names have dropped into my buy zones, some are just above them, and others still have a bit to go, like MU.
The best-case scenario would be a flush lower, where AI names keep getting sold, the other rotation names also pull back for a week or so, and then the whole market can move higher together into the end of the year, just as it did in March, April, and May.
Even if we stay in a rotational market, we should be getting some kind of short-term low in tech over the next week or so that would allow for some buyable setups.
The 2018 Analog Is Still on the Table
I think the worst-case scenario is that we are in the 2018 market all over again and are in for a steeper sell-off and a bigger fear event, where all of the support levels above break. After all, we are tracking that sell-off almost to the day.
However, even in that scenario, it is likely we are somewhere around the purple arrow, October 24, 2018. It is kind of wild that we are sitting here on October 22, 2026, looking at a similar setup.
If we continue to follow the 2018 analog, we should see some more selling below Thursday’s close, perhaps down to the 200-day SMA, before a bounce. That bounce would likely form a lower high at the 100-day SMA, or even briefly trap bulls above it, before selling resumes and we break below the 200-day SMA.
That selling would push QQQ below its 200-day SMA and undercut the July low, just as we saw in 2018 when the market broke below that year’s February low before bouncing.
QQQ Daily Chart & 2018 Analog
Both scenarios are still on the table. Either we find a durable low in the next week or two, or we bounce, break key support levels, and head lower into year-end like we did in 2018.
For now, I am treating this sell off as a buying opportunity. Historically, the third year of a presidential term has been the most bullish, and I am keeping that bigger-picture context in mind as we manage this tech sell-off.
The tech bulls have taken a beating, but the main question now is whether these key support levels can hold. We are at or getting close to some important buy zones, and the next week or two of earnings should tell us a lot about where this market is heading.