Support Level Broken: Market Heading Lower?

The Nasdaq trying to snap a two-day sell-off. It's higher as you saw the Dow is lower, but our next guest says the charts point to more trouble ahead. Fairlead Strategies founder and managing partner Katie Stockton joins us now. What's worrying you, Katie? >> Well, last week we saw the Nasdaq 100 index take out short-term support. That was based in part on the 50-day moving average. You can see it's starting to roll over, as well. And listen, that does increase downside risk because the next support is pretty well below 8 or 9%. And the same would be the case for the S&P 500 if it were to break down below equivalent support, which is defined also by that 50-day moving average in addition to our cloud model. We're putting that level right around 7340 for the S&P 500. Importantly, both indices have been somewhat coiled up in these consolidation phases. And when we see the consolidation phases resolve to the downside, it can be associated with the big pick-up in volatility. So, we're sort of bracing for that right now. And clearly, the downside leadership is pretty localized from the semiconductor sector in the broader AI trade. >> I was just going to ask, where where in the AI trade or where in the Nasdaq are you seeing it? It's It's the momentum names? Is the memory chips? >> Yeah, I mean, listen, it started in June, actually even in early June when we saw the relative pullback in AIQ, which is an AI-related ETF. The biggest position there is SK Hynix. Second is Micron. So, it has very big exposure to these types of names. And we felt that that was like an early indication of the loss of momentum that we are now sort of trying to recover from. The 20-day moving average rolled over first in June, and now, of course, it's pointing lower. We've had a series of short-term or minor breakdowns. Thankfully, now the AIQ ETF after nearly 19% downdraft from the high is near some additional support. So, we're looking for maybe a few days of stabilization that could give people a chance to kind of regroup and decide which names they might want to reduce their exposure as they bounce. >> What about the rest I mean the rest of the market for a moment? We're heading into earning season. Do you see any interesting opportunities in the charts? >> Well, listen. I mean there's been such a rotation, right? So, even as semis have underperformed, we've seen that rotation into software that we've been talking about for some time. And there are even still breakouts underway in some defensive areas of the market. Even the REIT sector looks like it's trying to break out. So, this is not really a broad-based move at this time. If we see the S&P 500 break down from its coiled up consolidation phase, then that would probably be a drag on just about everything. So, we would use that almost as an indication to be hedged partially from a top-down perspective, especially focused on that high beta segment of your portfolio. But otherwise, there is usually safety to be found, of course, in the likes of healthcare, REITs, utilities, all of which you can find some really good technical setups, certainly from a bottom-up perspective. >> Yeah, I mean that's where you've seen the biggest strength over in the last week, which is real estate, consumer staples. I'm curious what financials have told you because we got these great earnings reports pretty much across the board. And this I mean that the S&P financials group over the last week is pretty much flat. It's an underperforming sector year-to-date. So, what do you glean about from the setup and earnings reactions from what we saw from this group? >> Yeah, it was a pretty muted reaction is the way I would put it. I wouldn't say it was bearish, but it certainly wasn't a bullish and welcoming reaction to these earnings reports. So, I don't know if it bodes for more of the same from the rest of the market, but it it kind of went off with a whimper, if you will. And the charts look okay. I mean they they're still long-term uptrends, consolidation phases within that context. The relative performance as you mentioned, it has really been under pressure for financials overall this year, but again, there's some spots of strength. I would encourage everybody to look at insurance stocks or insurers have been really very strong in relative terms and with that we've seen a lot of breakouts from the bottom up perspective there.