The Nasdaq 100 Index continued its strong sell-off this week, reaching its lowest level since July 31. It has now entered a technical correction after falling by over 10% from its October highs, with investors remaining concerned about the artificial intelligence (AI) industry. This sell-off may continue in the near term before rebounding after the midterm elections.
Nasdaq 100 and QQQ ETF drops as AI jitters continue
The Nasdaq 100 Index and QQQ ETF have pulled back as investors have remained concerned about the artificial intelligence bubble.
A closer look at the constituent companies shows that they are all highly exposed to the AI space. Intel stock has dropped by 51% in the last 30 days, while CoreWeave, Nebius, Teradyne, SanDisk, Marvell Technology, Arm Holdings, and Lumentum have fallen by over 35% in this period.
Intel plunged last week after the company published its earnings report, which showed that some of its business slowed last quarter. The company has now lost billions of dollars in value in the past few months.
CoreWeave and Nebius have plunged as investors have remained concerned about the industry, with Gartner predicting that these firms will need to launch major impairments. Elon Musk also warned that hundreds of neocloud companies may collapse because of the financing challenges.
Marvell Technologies and Lumentum stocks plungedafter announcing a mega merger that will create one of the biggest players in the data center industry. Lumentum dropped because the transaction is an all-share deal, while Marvell Technology investors are concerned about its value.
READ MORE: Marvell weighs Lumentum acquisition: upside for LITE holders, pressure for MRVL
The other top laggards, including popular names like Astera Labs, Applied Materials, Seagate, and Advanced Micro Devices (AMD) have all plunged amid AI bubble fears.
US midterm elections and regulations
The Nasdaq 100 Index has also plunged as investors focus on the US midterm elections, where Democrats are expected to win the House of Representatives and the Senate.
Democrats have made data centers a key part of their message, with many of them calling for strict regulations.
On the positive side, it is common for an asset to drop ahead of an election and then rebound when it ends. For example, defense contractors like Lockheed Martin and RTX jumped after Trump won and then lost momentum.
In addition to the midterm elections, the Nasdaq 100 Index and the QQQ will react to the upcoming earnings. Some of the top tech names that will publish their earnings include AMD, Arista Networks, Shopify, Arm, and Qualcomm.
Nasdaq 100 Index technical analysis
Nasdaq 100 Index chart | Source: TradingView
The daily chart shows that the Nasdaq 100 Index has pulled back in the past few months, moving from a high of 31,361 in October to the current 27,989.
It has already dropped below the important support level of 28,123, the 38.2% Fibonacci Retracement level.
The index has also moved below the value area low (VAH) of the Fixed Range Volume Profile. It also sunk below the 50-day Exponential Moving Average (EMA), while the Relative Strength Index (RSI) has dropped towards the oversold level of 30.
Therefore, the path of the least resistance for the index is downwards, with the initial target being 27,133, the 50% Fibonacci Retracement level. A drop below that price will point to further downside towards the 61.8% retracement point at 26,137.
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