AI Concerns Spooks Market
The market continued its see-saw action following Monday’s mini selloff over the China AI (artificial intelligence) DeepSeek worries with Wednesday’s open failing key resistance. Major Tech earnings are due out the rest of the week and could provide clues on how February might unfold for the major indexes.
Monday’s technical damage was a slightly bearish development for the Nasdaq and the S&P with both indexes falling below their current uptrend channels intraday. The indexes did manage to hold key levels into the closing bell with the Dow actually closing higher for a fresh yearly high.
The selloff was triggered by China’s AI startup, DeepSeek, which is “supposedly” a cheaper open-source large language model. The company said the initial version cost less than $6 million to design. There were doubts casted by some on Wall Street about that number, but nonetheless, raised concerns bigger AI models could be built out with much less investment.
Tech companies have been investing billions to build out their artificial intelligence models and data centers and were hit the hardest on Monday’s bloodbath. Nvidia (NVDA) has been the biggest bread winner over the AI hype and saw its shares sink 17% on Monday. The stock shed $600 billion in market cap, the biggest one-day loss in U.S. history.
The close below the 200-day moving average on Monday was a bearish development as it opened up a further fade towards $115 and prior support from last September and early October. If $115 fails, backup support levels at $110 and $105.
The Nasdaq fell 3% on Monday with key resistance at 19,750 holding over the past two sessions off the rebound. Another move above this level gets a retest to 20,00-20,250 back in play with the December 16th record high at 20,204. The middle the uptrend channel remains at 20,500.
Key support is at 19,500 with backup help at 19,500 and the 50-day moving average. A close below these levels and out of the bottom of the uptrend channel would be a bearish development.
The Russell has struggled with key resistance at 2,300 following Monday’s close back below this level. We continue to talk about a close above 2,325 and the 50-day moving average being a better setup.
Shaky support is at 2,275 is followed by 2,260. A move below 2,250 and the January 15th and 16th low at 2,252 could lead to a more severe pullback to 2,225-2,175. The 50-day moving average continues to show signs of rolling over after flatlining since mid-December.
The S&P has traded within the prior trading range between 6,000-6,100 over the past seven sessions with last Friday’s all-time at 6,128. Closes back above 6,100 keeps breakout potential towards 6,200-6,250 in the mix with the former representing the middle of the current uptrend channel.
Key support and the bottom of the uptrend channel are at 6,000 with the 50-day moving average just below. A close below these levels would be a slightly bearish development with downside risk to 5,900-5,850.
The Dow came within 97 points of its all-time with key resistance at 45,000 holding the past couple of days. Continued closes above 45,000 and the December 4th all-time high at 45,073 gets 45,500-46,000 in focus.
Support is at 44,500-44,000. A drop below 43,750 and the 50-day moving average just below would be a possible warning signal of a near-term top.
The Volatility Index (VIX) zoomed up to 22.50 on Monday’s mania while closing below 20. This was a slight win for the bulls. Tuesday’s close back below 17.50 was also a relief with this level holding on Wednesday.
The bulls need to clear and hold the 200-day and 50-day moving averages, first, before 15 comes back into play.
Meta Platforms (META) shares were pushing fresh all-time highs after announcing better-than-expected numbers after Wednesday’s close. Microsoft (MSFT) also topped forecasts but shares were down 4% in extended trading.
Both companies defended their hefty AI spending following reports that China’s AI Platform, DeepSeek, was built out at a substantially lower cost basis. Until the actually numbers are proved and more is learned, this cloud could hang over Tech and the overall market, in general.
TRENDING: These 3 ‘Small Account’ Strategies CRUSHED 2024!
For years, we’ve been hearing traders as the same question… over and over again…
“How can I get started without risking it all?”
Because let’s get real for a second. Most strategies NEVER work. And when they do – they expose you to so much risk that the SECOND you hit a losing trade – you’re wiped out.
For this very reason, we have been working on a basic system that uses three types of trades.
It’s fully integrated and can take less than 20 minutes a week to nail 15%, 88% and occasionally swing for the fences with 300%.
The best part? It’s a system you can use the rest of your life.
Go here… watch this video see if you like the strategies.
(guess what? you can access them for just $5 bucks if you like what you see)