Jefferies technical analyst finds an encouraging development in Thursday rebound, setting stage for rally into year-end

By Jules Rimmer

Jefferies' Kirsche spots Thursday's intraday Nasdaq reversal is the sharpest since April

Thursday's intraday recovery on Nasdaq was the sharpest since April

Thursday's sharp intraday reversal in the Nasdaq 100, its largest since April, was "probably the most encouraging development since October's correction began." Now, a Jefferies market intelligence analyst interprets the current wobble as one of the last attractive opportunities to build exposure ahead of what he expects to be a strong November and December.

Dan Kirsch is a well-respected technical analyst for Jefferies, whose daily note on technical analysis has a wide following. His installment Friday acknowledged that while a pickup in volatility this month was forecast, the weakness in technology stocks XLK was more pronounced than he expected.

However, what encourages Kirsch most of all is that the broadening of market performance that he called for is now unfolding and more forcefully than he anticipated.

The chief development of late for Kirsch has been the divergence between technology and the rest of the market RSP. He notes that while Nasdaq NDX has fallen about 5% from its highs, the equal-weight S&P 500 has rallied some 7% to 8% from its lows. He argues that he would have preferred this broadening out to have been accompanied by strength in tech, but nonetheless it's an encouraging sign for markets.

Over at BTIG, technical analyst Jonathan Krinsky believes that after seven consecutive declines, "semiconductor stocks are finally poised for a tactical bounce but this doesn't change our bigger picture view that there's likely more downside ahead."

Krinsky was only able to find two previous instances where the Philadelphia Semiconductor Index SOX had such a long string of losses. On both of those occasions, in 2002 and then 2008, the index would rebound sharply before suffering more concerted downturns of 33% and 38% over the following weeks.

Krinsky expects semis to rebound before falling victim to a more pronounced downturn afterwards

Kirsche still thinks it's premature to call the correction complete. His analysis shows the S&P 500 SPX still has room to test its 100-day moving average around 7600 and like Krinsky he still has concerns about the semiconductor index and highlights 11,000 as the next important support.

Positioning is "considerably less stretched than it was in the summer," as Kirsche points out. The note cites Vanda data suggesting technology exposure is close to neutral and recent weakness should have reduced that further.

Lastly, Kirsche points to technology weakness as one of the primary forces pushing Treasury yields lower. His target for the U.S. 10-year Treasury BX:TMUBMUSD10Y is 5.00% and thereafter 4.8%.

These lower rates are contributing to the broadening of the overall market as several other commentators have picked up in the last few days.

-Jules Rimmer

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10-16-26 0638ET