Nasdaq Index Analysis: Can Chips Extend Gains as Software Lags?

The Nasdaq Composite gained 187.42 points, or 0.83%, to close at 22,822.42 on Thursday, extending a two-day run as tensions in the Middle East eased and market volatility declined. Growth stocks found firmer footing, helping the index maintain its rebound.

The pullback in oil prices reduced some inflation pressure and steadied the macro outlook. However, economic data still points to slower growth alongside elevated inflation, and the Federal Reserve has not finished tightening policy. Policymakers left open the possibility of additional rate hikes if needed, a factor that remains in the background even as equities push higher.

Technical picture and key levels

Technically, the Nasdaq Composite’s main trend is up after the index moved above the 200-day moving average at 22,396.17 and the 50-day moving average at 22,520.45. Buyers also drove the index into the bullish side of a long-term 50% to 61.8% retracement zone, ranging from 21,881.82 to 22,532.88. The article notes that all four levels are new support.

On the daily chart, the market has a clear path toward two main tops at 23,169.68 to 23,320.62. The latter level could act as a launching point for a move toward major tops at 23,988.27 and 24,019.99.

Chips lead while software lags

Sector rotation was evident. Chip stocks led the Nasdaq higher, and retail showed strength during the session. Software underperformed, falling 2.2%, as investors appeared to rotate away from names facing AI competition pressure and valuation concerns.

When chips are rising while software sells off on the same day, the article says the market is signaling where it currently sees value.

Selected movers

• Amazon gained 5.43% after highlighting strong artificial intelligence growth in its cloud business, including more than $15 billion in annualized AI revenue.
• Intel rose 4.70%, supporting gains across semiconductors.
• Meta Platforms increased 2.63% as large-cap tech participated in the advance.
• Applied Digital fell 8.0% after reporting a wider quarterly loss.
• Cloudflare dropped 13.88%.
• Fastly declined 12.76%.
• ServiceNow lost 7.86%.
• Zscaler fell 11.46%.

The article describes the software selloff as significant and concentrated, and flags it as something to watch to see whether pressure spreads more broadly across the software space.

What to watch next

Advancers outpaced decliners on the Nasdaq, suggesting participation was broader despite the software weakness. The article attributes much of the index’s strength to chips and large-cap tech.

Two factors highlighted as key for whether the rally extends or stalls are developments in the Middle East and incoming economic data. While stocks are moving higher, the market is described as being selective about what it buys.