Hedge funds have just rebuilt tech long positions, but Nasdaq's key support has begun to weaken

The Nasdaq 100 Index (NDX) is approaching the lower edge of a months-long consolidation range. Previously, while the index maintained a high-level consolidation, technology stock positions rebounded sharply and the technical structure began to weaken, significantly increasing the market’s sensitivity to a potential downside breakout.

Pre-market trading has already signaled further weakness: NDX futures have broken below the prior uptrend line and fallen below the 100-day moving average. If the decline continues, the short-term technical pattern of the index will further deteriorate, shifting market focus to the next level of support below.

Meanwhile, capital has clearly returned to technology stocks in recent days. According to institutional brokerage data from Goldman Sachs, hedge funds were net buyers of U.S. Technology, Media and Telecommunications (TMT) stocks on 10 out of the last 11 trading days. In other words, bullish technology positions were established just before the technical structure began to deteriorate.

This has heightened the market’s sensitivity to unexpected negative news. At present, the debate surrounding AI safety is testing the valuations of high-value tech stocks, while the ongoing closure of Saudi oil pipelines has brought energy prices and inflation risks back into traders’ perspectives. Though these risks have different natures, both could act as catalysts to drive a repricing of technology stocks.

Technical Breakdown: With Key Moving Averages Lost, Support Below Becomes the Focus

NDX has previously remained in a broad consolidation range, but breaking the uptrend line and losing the 100-day moving average in pre-market trading suggests the technical structure supporting short-term gains is weakening. However, pre-market movements alone are not enough to confirm a medium-term trend reversal; whether the index can reclaim these key moving averages remains a crucial point to watch.

If the index confirms a further downward breakout, the 200-day moving average will become an even more important medium-term support, indicating further potential downside from current levels.

Technical performance in the semiconductor sector has been even weaker. The Semiconductor ETF (SMH) was trading near $544 pre-market, already having broken below the lower boundary of its consolidation range and currently below the 100-day moving average, with the 200-day moving average even lower. As a core part of the current AI trading theme, early weakness in semiconductors adds additional pressure to the overall trend in technology stocks.

Position Risk: Bulls Just Added, Yet Tech Stocks Are Turning Weaker

The reason the technical deterioration is noteworthy is that capital has just rotated back into technology stocks. Goldman Sachs’ institutional brokerage data shows that hedge funds bought U.S. TMT stocks on 10 out of the last 11 trading days, with purchases mainly concentrated in semiconductors and semiconductor equipment. The two-week net buying pace ranks in the 97th percentile over the past five years.

Highly concentrated positioning does not necessarily guarantee a declining market, but it alters how prices respond to negative news. Especially at a time when intraday volatility within tech stocks has increased, a partial unwind of bullish positions could further amplify price swings.

Goldman Sachs data shows that the 200-day volatility spread between momentum winners and losers within TMT is around 76, whereas it is just 13 for the S&P 500 Index, highlighting that internal divergence and volatility among tech stocks is much higher than in the overall market.

Analysts believe that the recent rise in volatility itself is not unusual; what truly needs vigilance is a fundamental shift in the core AI narrative. Meanwhile, the Goldman Sachs Fear Index fell by 3 points in a single day last Friday, marking one of the biggest single-day drops in three years, indicating that widespread market panic has yet to materially increase. In other words, positions have shifted to technology bulls, but overall market risk-off sentiment is not yet aligned with this positioning.

Dual Catalysts: Rising AI Safety Debate and Energy Supply Risks

Against this backdrop, the AI safety debate is emerging as a new variable for tech stocks to digest. Anthropic CEO Dario Amodei has called for a “slowdown in frontier development” and has received varying degrees of support from multiple tech leaders. The market’s real concern is not that AI progress will stop immediately, but that safety issues might lead to tighter regulations, thereby slowing progress on cutting-edge models and raising new questions about heavy AI capital expenditures.

Privorotsky believes the actual impact of this risk on capital expenditure may be limited. Giants like Microsoft and Meta have no clear reason to exit the AI race; more likely, there will be increases in safety reviews and independent oversight—rather than an outright halt in investment. Therefore, the AI safety debate is currently more of a risk to valuations and expectations, rather than indicating a substantive deterioration of the fundamentals.

Energy risk differs in nature. Saudi Arabia’s east-west oil pipeline, which circumvents the Strait of Hormuz with a daily transport of about 4 to 5 million barrels, remains closed and repairs may take days or even weeks; inventory at Yanbu Port may only sustain exports for 5 to 7 days. If the disruption continues, and with the Strait of Hormuz supply also in question, about 4% of the world’s oil supply could be affected.

Meanwhile, the Houthi forces are advancing toward the Bab-el-Mandeb Strait, suggesting a risk that energy supply challenges could spread from a single route to two critical chokepoints. In Privorotsky’s view, AI-related risk mainly affects valuation expectations, while energy supply issues could further impact oil prices, inflation, and monetary policy—the latter having a more direct effect on the broad market.

Volatility Pricing: A Gap Remains Between Technical Deterioration and Market Panic

The simultaneous emergence of technical, positioning, and external risks does not guarantee a major market correction; however, it raises the question: has current volatility already priced in these risks?

Garrett’s analysis shows that historical breaches of CTA technical thresholds often coincide with significant spikes in the VIX. While the NDX and semiconductor sectors are already displaying signs of technical weakness, the VIX has yet to show a commensurate rise, indicating the market remains relatively restrained in pricing in potential volatility.

Seasonal factors are also unfavorable. Historically, the current period is a time window when VIX is prone to rising. If NDX confirms a further break below key support, while AI regulatory or energy supply risks continue to escalate, concentrated technology bullish positions could become an important channel for amplifying volatility.

Therefore, the real focus for the market is not any single negative catalyst, but whether key technical levels can hold, and whether positioning, catalysts, and volatility begin to form reinforcing feedback loops. If essential supports are breached while market panic remains low, there could be greater scope for a repricing of volatility going forward.