Nasdaq is testing a key support level, which stocks hold the key?

The Nasdaq 100 Futures have landed on a key support level ahead of Big Tech earnings. Traders and investors will be keeping a close eye on the developments this week as some of the biggest tech companies in the country announce their quarterly reports.

Here is how things currently stand on the daily chart.

As can be seen on the chart, the price is currently testing a key support area for the third time.

The trendline was already tested twice in April and May and bounced off it successfully.

Lightning strikes twice

What makes the Nasdaq dip of April interesting is that it came in a week when many of the biggest constituents of the Nasdaq index announced their earnings. One could conclude that the market keeps testing the waters for signs of the AI rally fizzling out. But it keeps going.

Two conclusions can be drawn from this occurrence. First, if the tech companies report strong earnings, it will spur a new rally.

Those strong earnings can only come on the back of growth in AI infrastructure, so it boils down to a bet on AI.

Secondly, and this scenario is more scary, if the earnings disappoint, it could trigger a selling that could sweep away all the gains of the last two years.

There is no denying the fact that the rally since 2022 has come on the back of the ‘Magnificent 7’ stocks. And these stocks have only been able to grow thanks to the race to AI technologies development.

So what happens if the AI growth stops? Will the remaining sectors take control of the index?

They’ve stayed relatively flat in the last two years in comparison to tech. And they’re unlikely to rally in the wake of disastrous tech earnings. This could be disastrous for the American stock market.

Who holds the key?

AI chip manufacturer Taiwan Semiconductor has already confirmed that AI spending is increasing.

Despite this, chip stocks have taken a severe beating in the last one month. AMD’s earnings after market today therefore hold the key, albeit a small one, in helping the index gain some support.

Then there is Microsoft which also announces its earnings later today. The fact that the tech giant is expected to announce quarterly revenue growth of 15% is scary to say the least.

A miss on those targets will likely tank the market as Microsoft is the second biggest constituent of the Nasdaq index.

Speaking of heavyweights, the biggest giant in the index, Apple Inc., also announces its earnings report on Thursday evening, together with Amazon, the fourth largest constituent by weight.

Needless to say, the next two days are not for the faint-hearted. Bulls and bears will battle it out the next two days, and the repercussions of that fight will determine the market path for the next 3 months at least.

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