Yesterday we talked about the setup for a potential technical correction in stocks, focusing on the S&P. Today, let's take a look at the Nasdaq — which is telling a similar story.

 

 

After the sharp Friday selloff, both S&P and Nasdaq futures bounced on Monday, into technical resistance (the 61.8% Fibonacci retracement).

 

That resistance held in both key indices today, which means the market correction scenario remains intact.

 

And at the center of both indices is one stock that now drives much of the market’s direction: Nvidia. 

 

If you recall, just five months ago, markets were questioning Nvidia's dominance.  The stock had just fallen 44%.  The triple digit revenue growth days had ended.  China's DeepSeek model had emerged as a threat.  And the trade war was threatening supply and demand for Nvidia's GPUs.

 

But two events reignited the next bull trend in the stock: 1) the de-escalation of the trade war marked the bottom, and 2) news of a $30 billion order from UAE drove a quick $400 billion market cap gain in the stock.

 

Nvidia shares have since more than doubled from the April lows.

 

And that brings us to the past four trading days, and two events that (for now) have marked the top in the stock:  1) Nvidia now has approval of the UAE deal ("buy the rumor, sell the fact"), and 2) the trade war has escalated (U.S./China).

 

Moreover, as you can see in the chart above, the plunge on Friday resulted in a bearish technical reversal signal (an outside day).  And now, we also have a break of the bull trend (the trendline) that comes in from the April low.  

 

So, we have a bearish technical picture for Nvidia shares. And Nvidia makes up 8% of the S&P 500, and 14% of the Nasdaq 100.

 

With all of this in mind, this looks like the setup for a technical correction.  And remember, the garden variety 10% corrections of the past two years have resulted in a Fed reaction (either signaling or direct policy action).