NAS100 Vulnerable ahead of Mag-7, Fed & NFPs

NAS100 Analysis

The index reached new record highs earlier in the month due the Artificial Intelligence revolution, spearheaded by tech heavyweights. But now this euphoria fades and gives way to concerns around the viability of this rally, sending investors towards small caps. Last week's results from Magnificent Seven peers Tesla Motors and Alphabet sustained those worries. Tesla posted disappointing results, as it AI push seems yet distant and its auto segment struggles. Alphabet's revenue's rose but failed once again to show a return on its AI investment ^[1].

Just as US2000 jumps more than 10% this month, NAS100 drops and risks entering correction territory (generally determined as 10% losses form a recent peak). It is in precarious position and vulnerable to further losses towards the 200Days EMA (blue line). On the other hand, NAS100 had flirted again with correction levels around three months ago, but managed to strike back. It defends this line and the lower border of the daily Ichimoku Cloud, which allows it to push for the EMA200 (black line). Retaking it would shift bias on the upside and give bulls the opportunity look for new records.

Now focus shifts to four more Magnificent Seven companies that highlight a busy earnings calendar and their results could determine whether this move out of Big Tech will continue or reverse. Microsoft, Meta, Amazon and Apple will have to deliver and offer an optimistic outlook. Microsoft is at the forefront of AI and already sees an uplift from its leading position, but its last guidance underwhelmed. Meta extended its revenue growth in Q1, but projects a slowdown in the reported quarter. Amazon comes from a good quarter and optimistic outlook, but has more work to do on the AI front. Apple's late AI entry sparked optimism for a device upgrade cycle, but the new features are a few months away. Sales have been disappointing for the past several quarters and faces demand issues in China, but execs believe they will return to growth.

The US Fed and NFPs will also be closely watched. The US central bank has softened its cautious stance around removing monetary restraint and markets expect it will use this meeting to lay the groundwork for a September pivot. They also price in three rate cuts within the year, but that optimism could be disappointed. The Fed's shifting rhetoric is due to the resumption of the disinflation trend and moderation in jobs gain, so Friday's employment report will important for the policy path.