Tech Selloff Signals Rotation to Cyclicals: Key Support Levels in Focus
E-mini S&P (March) / E-mini NQ (March)
S&P, last week's close: Settled at 6133.25, down 18.75 on Friday and up 99.75 on the week
NQ, last week's close: Settled at 21,911.25, down 127.00 on Friday and up 316.50 on the week
The AI theme was bludgeoned overnight with competition emerging last week and gaining traction over the weekend from the Chinese open-source large language model DeepSeek. Many questions remain unanswered, most prominently regarding the source of computing power, given regulations on NVDA chip exports. DeepSeek has shown performance comparable to that of OpenAI's ChatGPT, but claims to do so with more efficiency and lower costs.
E-mini NQ futures lost more than 5% on the low. It is easy to get caught up in the day's headlines, but this move aligns exactly with what I spoke about on CNBC last Thursday, a rotation from tech to more cyclical names. We imagined a move that would play out for weeks and even months, but such a viscous selloff could have already accomplished the bulk of the unwind, paving the way for opportunity. Still, we approached this week cautiously and reduced our Bullish Bias last week, ahead of Wednesday's Federal Reserve policy decision.
With volatility picking up, we are zeroing in on several significant areas. First, the low in the E-mini S&P was nearly a .618 retracement, which stands as major three-star support at 5943.75. For the E-mini NQ, it tested the previous floor, rare major four-star support at 20,639-20,662. These will be critical areas in which the bulls must defend. To the upside, we must see a move above major three-star support in order to only begin neutralizing the selling, with these levels coming in at…
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