LIVE MARKETS-Nasdaq breadth nears a prior washout low

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NASDAQ BREADTH NEARS A PRIOR WASHOUT LOW

Last week was a tough one for the AI trade. The PHLX Semiconductor Index .SOX and the S&P 500 technology sector .SPLRCT suffered their biggest weekly declines since April 2025, helping drag the tech-heavy Nasdaq Composite .IXIC down more than 4% for its worst week since late June.

By Friday's close, the Nasdaq had fallen 5.3% from its October 6 record close and 5.7% from its record intraday high reached the same day.

The mood is brighter Monday morning, however. E-mini Nasdaq 100 futures are up more than 1%, pointing to a rebound at the open.

Even so, many traders remain focused on what's happening beneath the surface.

One widely watched gauge, the Nasdaq New High/New Low (NH/NL) Index, fell to 18.9% on Friday, its weakest reading since March 31. The indicator peaked at 67.8% in mid-August before plunging, highlighting deteriorating market breadth.

The divergence became even more striking as the Nasdaq continued climbing to new highs. While fewer stocks participated in the advance, a handful of megacap names carried much of the load. Between mid-August and the Nasdaq's October 6 peak, the Roundhill Magnificent Seven ETF gained more than 8% and reached record highs even as the NH/NL Index moved in the opposite direction.

Narrowing participation is often viewed as a warning sign because healthy rallies typically rely on broad support. From that perspective, last week's sharp tech selloff may be a sign that the breadth divergence is finally beginning to matter.

On the other hand, some traders see opportunity. The NH/NL Index is approaching the 17.6% level reached on March 31, when the Nasdaq bottomed during the spring selloff. If breadth becomes sufficiently washed out, it could help lay the groundwork for a more durable rebound.

For now, the divergence remains unresolved. Either leadership stocks continue to weaken, or the broader market begins to catch up. With breadth nearing a prior washout low, traders may soon learn which side ultimately gives way.

(Terence Gabriel)

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