Financial market analysis platform The Market Ear argues that the Nasdaq 100 Index (NDX) is undergoing a dual test on both technical and fundamental fronts. After a sharp sell-off, the index formed a hammer reversal candlestick at the intersection of a key trend support line and the 100-day moving average, where bulls and bears are now engaged in a decisive battle. If the support holds, a powerful short squeeze could be triggered; if it breaks, the market may deteriorate rapidly.

During Thursday's session, trading volumes in semiconductor fund VanEck Semiconductor ETF (SMH) and memory industry fund Roundhill Memory ETF (DRAM) surged to recent peaks. Long-short hedge funds suffered heavy losses, with global systematic long-short strategies falling 1.4% in a single day, approaching a four-standard-deviation extreme move. Meanwhile, technology stock credit default swap (CDS) spreads continued to widen, with credit market and equity market stress signals converging in rare alignment.

Currently, the NDX forward price-to-earnings ratio has fallen back to approximately 21 times, returning to valuation lows not seen since the AI rally began in 2023. Analysts note that as positioning continues to clear out, earnings may become the key variable supporting valuations as the market enters earnings season.

Key Support Level: Hammer Candlestick and Moving Average Convergence

According to The Market Ear's analysis, NDX futures printed a large hammer candlestick on Thursday along the uptrend line maintained since the April low, with the 100-day moving average also providing support convergence at the same zone, making this level the core battleground for the current market.

The technical logic is clear: if bulls can defend this area, the previously battered short positions will face forced covering pressure, and the potential force of a short squeeze should not be underestimated. Conversely, if support fails, a market structure lacking effective buying support would cause the decline to accelerate rapidly.

Credit and Equities: Stress Signals Finally Align

One notable change in this round of technology stock declines is that credit market and equity market signals have finally converged. Previously, technology stock CDS spreads had experienced one notable jump, but at that time NDX rose instead of falling, leaving market participants puzzled.

In this round of correction, credit spread widening and technology stock declines occurred simultaneously, with the two markets "finally beginning to speak the same language." The technology stock implied volatility indicator VXN also rose accordingly, approaching its September high, though from a longer-term perspective, volatility has remained range-bound over the past two months without a trend breakout.

Semiconductor Volume Surge: Stop-Loss Clearing or Another Round of De-Risking?

During Thursday's sell-off, heavily traded names saw abnormal volume spikes.

On that day, semiconductor ETF SMH and memory ETF DRAM both recorded their highest single-day volumes in recent periods, followed by buying interest stepping in, with the market showing signs of temporary stabilization.

Rich Privorotsky, head of Goldman Sachs' One-Delta trading desk, noted that long-short books are actively de-grossing, and some of the volume may reflect passive stop-loss liquidations rather than an active shift in fundamental judgment. Global systematic long-short strategies fell 1.4% yesterday, an extreme single-day performance approaching four standard deviations. The core of the losses is no longer net exposure direction but gross exposure size—while longs experienced a powerful squeeze, shorts faced an equally forceful short squeeze, demonstrating clear two-way damage characteristics.

AI Capital Expenditure: Solid Demand, but Structural Contradictions Remain

Privorotsky holds a cautiously optimistic view on the semiconductor sector's short-term outlook, believing that the most leveraged parts of the AI complex have rebounded notably from yesterday's lows, and that credit-level panic may have been overpriced in the short term, potentially marking a near-term bottom.

He proposes a potential relative value trade idea: short hyperscalers while going long semiconductors.

However, structural contradictions persist. Privorotsky points out that too much capital is chasing a limited number of power-ready computing infrastructure assets, and the repricing process is far from over—it could evolve gradually or erupt in violent dislocations that spread to the broader market.

One noteworthy contradiction is that despite accelerating technological depreciation, spot computing power rental prices for B200, H200, H100, and even older A100 chips remain strong. This means AI financing is under pressure, but actual computing supply remains scarce, and the competitive advantages of existing infrastructure holders are difficult to dislodge in the short term.

Falling Yields No Longer a Talisman for Tech Stocks

Since September, NDX and the US 10-year Treasury yield have shown a rare positive correlation—tech stocks and yields rising and falling together, breaking the traditional narrative framework that "falling rates benefit high-valuation growth stocks."

This correlation indicates that the core variables currently driving market pricing are growth expectations and risk appetite, rather than the discount rate itself. In other words, if yields decline due to growth concerns, it is not a bullish signal for tech stocks.

The market is currently more worried about slowing growth than the level of interest rates.

Valuation Bottoming: Earnings Season Could Be the Turning Point Catalyst

The NDX forward price-to-earnings ratio has fallen back to approximately 21 times, once again touching valuation lows not seen since the AI rally began in 2023.

Peter Callahan, US TMT sector specialist at Goldman Sachs Global Banking and Markets, notes that this level may constitute a quadruple bottom technical formation, providing a relatively favorable valuation foundation for the upcoming earnings season.

Against the backdrop of continued position clearing and sentiment becoming extreme, actual earnings performance will become the key determinant of market direction. If corporate earnings meet expectations, room for valuation recovery may open up; conversely, if fundamentals deteriorate further, a breach of the current technical support level will be difficult to avoid.