NASDAQ 100 not yet in correction, but it's getting close

The NASDAQ 100 (NDX) topples 3% on Friday on a wave of AI stock selling stemming from the disastrous Amazon (AMZN) and Intel (INTC) earnings reports released late Thursday. Coming off the previous session's Alphabet (GOOGL) earnings-induced slide and a horrid October, growth investors might be surprised to know that the NDX isn't yet in a correction.

That's right, the tech-heavy index is still about 9% off the October 6 all-time high of 31,361. The 10% drawdown threshold required for a textbook correction sits at 28,225. But don't get too excited. NDX is now trading down to August 3 highs. And the lows from that same session? 28,196 or below the 10% threshold.

Not yet a correction but probably soon

The odds are that the NASDAQ 100 will soon be in correction territory, and it will be time for AI bulls to lick their wounds before searching for the next catalyst. With Meta Platforms (META), Alphabet, Amazon, Intel and Sandisk (SNDK) all suffering major sell-offs on earnings, we can conclude that the AI trade is entering a risk-off period in which a decent cross-section of shareholders are reducing their bets on the AI trade.

At this point, investors are looking at all the recent evidence and deciding it's best to sit on the sidelines until the market finds a bottom. Though US interest rates have pulled back in recent weeks, rates still remain too high for comfort. Investors know that more institutional money could switch to fixed-income with the 10-year Treasury near 5%. Of course, the odds are high that the Federal Reserve (Fed) will hike rates in December, and most observers expect at least two more rate hikes in the first half of 2027. So the overhang from the bond market has become a very real competitor to NDX gains.

On top of that the midterm elections next Tuesday are giving the markets pause as the Democratic Party is expected to win both the House and Senate. Over the last century, the worst combination of a divided US government, one with a Republican president and a Democratic Congress, has typically meant meager gains for the stock market (circa %% on average).

Then there's the growing reporting that the White House is preparing to relaunch the war against Iran after the midterms. Past Iranian counterattacks have led to heavy Oil infrastructure damage across the Middle East. With WTI already holding onto the $100 handle, this could be a recipe for soaring energy costs that hurt the economy and damage the AI boom.

On top of those critical risks, Anthropic is preparing for its $2 trillion IPO, possibly as soon as next month. Like SpaceX before it, the expiration of lockups over the ensuing year following an IPO creates an enormous supply drag as insiders begin to cash in on their long-held shares. The recent sell-off in Cerebras Systems (CBRS) due to cascading lockups is a case in point. And it's not only SpaceX and Anthropic. Alphabet and Meta Platforms are also raising enormous sums from the equity market.

NDX technical analysis

The daily chart below shows NDX falling through the 28,800 to 29,000 support band. That band has been supportive for the index going back to May of this year, and NDX hasn't closed below it since July 31.

This is telling us that the NASDAQ 100 index is now in a downtrend. The index is trading below the October 23 range low, meaning that we now have an official "lower low" on the chart.

Bears have two points of historical support to focus on. First, the June 9 range low near 28,200. That level has a certain amount of supporting evidence from the rising 200-day Simple Moving Average (SMA) that is poised to bisect it sometime next month.

Then there's the July 29 low near 27,200 that could also become a point of fortification. Either way, if Advanced Micro Devices (AMD) and Apple (AAPL) earnings can't rescue the index next week, then bulls will have to wait until November 17 for Nvidia (NVDA) to report.