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Now that we’ve got Nvidia’s (NVDA) earnings out of the way, our focus needs to be on a broader rebound in the tech sector, and specifically on the Nasdaq. This will be key, especially in terms of the sustainability of this bull market in stocks.

This is the Sector Bullseye newsletter, after all. And if you didn’t know by now, the tech sector is the largest and, consequently, the most important sector for the overall market.

What I’m saying is that if the tech sector, and by extension, the Nasdaq, doesn’t make a new high in the coming months, we could be in serious trouble. Check this out…

This is the Moment for Tech Bulls
 

During the market’s latest decline, tech led to the downside. This raised my alarm bells given the sector’s tendency to lead both to the upside and the downside. In other words, tech typically has the first-mover advantage compared to other sectors.

Have a look at the chart of the large tech ETF, the Technology Select Sector SPDR (XLK), below...

The decline from the July 5 high to the August 5 low was 19.9%. This means we were 0.1% away from satisfying the arbitrary definition of a bear market. We probably would have seen “Markets in Turmoil” specials on CNBC if it had dropped another 0.1%.

This was the biggest decline XLK faced since 2022. Prices even took out the April 19 low to the downside, but did so with a case of bullish divergence in price from the RSI indicator. That is, prices made a new low, but the momentum indicator did not. It’s common to see such divergences at important market turning points.

But then tech stormed out of that low and led the market higher for a couple of weeks. This was an encouraging sign. However, the rally stalled out in the resistance zone at 222-228, drawn on the chart above. In the process, it may have formed a lower-high. 

To be clear - I don’t think the August 22 high is going to hold. It looks like prices just completed a higher-low on August 28 following Nvidia’s earnings, but the key is for XLK to exceed resistance at 222-228 and August 22 high.

If it does, I suspect this market to soar at least going into the election. But if not, we’re probably in bigger trouble. I’ll be sure to keep you posted on these sector developments.

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