Nasdaq 100 has already entered a trading range or a bear cycle, warns Katie Stockton

Key Concepts:

• Cell Signal (Technical Indicator): A technical indicator signaling a potential loss of upside momentum.
• Bear Cycle: A prolonged period of declining stock prices.
• Downside Leadership: When a specific sector (e.g., semiconductors) leads the market in declining.
• SMH/SPX Ratio: The ratio of the Semiconductor ETF (SMH) to the S&P 500 (SPX), used to gauge semiconductor performance relative to the broader market.
• Long-Term Momentum: The trend of price movements over an extended period.

Analysis of Nasdaq 100 and Tech Sector

• Cell Signal Triggered: The Nasdaq 100 has triggered a key "cell signal" for the first time since February 2022. This signal indicates a significant loss of upside momentum, suggesting potential problems for the tech trade in the longer term.
• Shared Weakness: The loss of upside momentum is not isolated; it's shared by big tech and, critically, the semiconductor sector, which is exhibiting downside leadership.
• Bear Cycle Indication: The combination of these factors leads to the belief that the Nasdaq 100 is entering a bear cycle. The strategy is to navigate this with short-term entries.
• Downside Leadership Problematic: Technology exhibiting downside leadership is usually problematic from a top-down perspective.

SMH/SPX Ratio Analysis

• Ratio Peak: The peak in the SMH/SPX ratio occurred around mid-year 2024.
• Ratio Downturns: Downturns in the SMH/SPX ratio tend to precede associated downturns in the S&P 500.
• Respecting the Shift: The analysis emphasizes being very respectful of the shift indicated by the SMH/SPX ratio.

Chart Analysis and Predictions

• Rolling Over: The chart analysis indicates a seemingly rolling over pattern, suggesting a long-term change of direction.
• Historical Comparison: A similar indicator was observed in 2021.
• Short-Lived Rallies: The analysis suggests that rallies are likely to be short-lived.
• Monthly Chart: The monthly chart, using slow-moving indicators, eliminates a lot of the short-term market noise.

Conclusion

The analysis points to a potential bear cycle in the Nasdaq 100, driven by a loss of upside momentum and downside leadership in the semiconductor sector. The SMH/SPX ratio is a key indicator, with its downturns historically preceding broader market declines. The strategy is to navigate this environment with short-term entries. The charts suggest a long-term change of direction, with rallies likely to be short-lived.