Key Takeaways

• The tech-heavy Nasdaq 100 Index has continued to hit record highs after rising nearly 8% in the second quarter, as Wall Street's unflagging enthusiasm for the AI narrative continued to drive stocks linked to the technology.

• Declining trading volume and a divergence between the price and relative strength index indicator points to easing buyside pressure.

• The Nasdaq 100 index may encounter support at key levels, including 19,500, 18,900, 18,400. and 16,974.

• A bars overlay pattern, which takes the index’s trending move between October last year and March this year and adds it to the April swing low, projects a price target of around 22,000.

The tech-heavy Nasdaq 100 Index has continued to hit record highs after rising nearly 8% in the second quarter as Wall Street's unflagging enthusiasm for the artificial intelligence (AI) narrative continued to drive stocks linked to the technology.

Below, we use technical analysis to identify key level to watch out for throughout the third quarter.

Indicators Signal Easing Buyside Pressure

Since bottoming out midway between the 50-day and 200-day moving averages (MAs) in mid-April, the index has continued to trend higher, with the price setting a record close on Wednesday.

Despite the Nasdaq climbing to new highs, several indicators on the chart point towards slowing momentum. Firstly, trading volume, while still above longer-term averages, has declined in recent days—possibly related to the shortened trading week. Secondly, as the price has climbed to a higher high this week, the relative strength index (RSI) has made a shallower high, signaling a bearish divergence, which implies easing buyside pressure.

Monitor These Key Levels During Retracements

During retracements or periods of profit-taking, investors should keep a close eye on these key areas.

An initial pullback could see the price revisit the 19,500 level, an area on the chart that may find support from last week’s low.

If the index moves below this level, it may attract buyers near a horizontal line connecting a range of prices between late May and early June around 18,900. This area could also encounter support from the rising 50-day MA.

A further decline could see a retest of the key 18,400 region, an area likely to find buyers near a trendline linking several price points around the index’s prior all-time high (ATH), which appears to have flipped from an area of resistance into support.

Finally, a broader correction in technology stocks could see a fall to the April low at 16,974, which currently sits just beneath the closely watched 200-day MA. Such a decline would represent about 16% downside from Wednesday’s close of 20,187.