OVERVIEW
The Morning Setup

• Tuesday: QQQ fell 1.69%, MDY 1.57%, IWM 1.25% and SPY 0.69%. Technology was the weakest sector, down 2.45%. - QQQ: Closed at 717.51, only 0.63% above its 712.98 50-day average. Tuesday’s decline came on 1.24x average volume, making this the most important index-level test today.

• Breadth: Seven of 11 sectors declined, while the percentage of stocks above their 20-day averages fell across SPY, QQQ, MDY and IWM. Nasdaq breadth deteriorated the most, down 11 percentage points.

• Premarket: At 7:19 a.m. ET, Dow futures were +0.09%, S&P 500 futures +0.05% and Nasdaq 100 futures -0.13%.

• Oil: Brent is around $91.79, its highest since late July, while WTI is near $85.79. Shipping through Hormuz remains heavily disrupted.

• ADI: Analog Devices beat quarterly revenue and EPS expectations and guided Q4 revenue and earnings above consensus, although the stock is roughly flat premarket.

• Today: Fed minutes are due at 2 p.m. ET. Markets currently assign roughly a two-thirds probability to rates remaining unchanged in September.

MARKET ANALYSIS
Why Yesterday’s Session Is Important

The Nasdaq fell 1.33%, its largest decline since late July, while the Philadelphia Semiconductor Index dropped 5%. Nvidia lost 2.3%, Micron 7%, Sandisk 9% and Western Digital 7.4%. The S&P 500 fell 0.69%.

Swingly’s ETF data shows the same deterioration. QQQ fell 1.69%, MDY 1.57%, IWM 1.25% and SPY 0.69%.

This was also not confined to technology. Seven of 11 sector ETFs finished lower, and internal breadth weakened across every major index universe. QQQ saw the largest decline in its percentage of stocks above the 20-day average, down 11 percentage points, followed by MDY at 10 points.

The distinction is volume and the QQQ declined on 1.24x its 20-day average volume, which gives the move more weight than the recent low-volume pullbacks. SPY and MDY traded closer to normal volume, while IWM remained lighter.

So Tuesday was meaningful distribution in Nasdaq rather than a routine pause.

QQQ Is the Level That Matters Today

QQQ closed at 717.51. Its 50-day average is 712.98. That leaves less than 1% between the index and its most important medium-term trend reference.
This is where the original report’s focus on 661.14 becomes unhelpful.

QQQ could suffer a major technical breakdown before getting anywhere close to that level and so the useful hierarchy is:

712.98 — 50-day average / immediate trend test
728–735 — recent breakout area that now needs to be reclaimed
661.14 — deep structural support

The recent VCP-type breakout has clearly failed for now. QQQ broke above the high-720s last week, lost that area, and then accelerated lower Tuesday on above-average turnover.

That does not automatically turn the intermediate trend bearish. But if QQQ loses the 50-day and cannot reclaim it quickly, the evidence changes materially.

A strong hold around 713 followed by a recovery back through the high-720s would instead suggest the selloff was a reset within the broader uptrend.

SPY Has Room, but Its Breakout Has Failed

SPY closed at 767.36, around 2.34% above its 50-day average at 749.83.
That gives the S&P considerably more room than QQQ.

But the immediate structure has weakened. SPY is now well below the 776–779 area it broke through last week, so the earlier VCP breakout should be considered failed rather than simply “testing resistance.”

The next bullish signal is not a move through 779 immediately. First, SPY needs to stabilise and begin reclaiming the recent breakdown area.

Its 50-day near 750 is the meaningful medium-term support. The old 729.10 level remains a deeper structural reference, but it should not drive today’s exposure decision.

Mid- and Small-Caps Are Holding Up

MDY closed at 704.13, still 1.45% above its 694.04 50-day average. IWM finished at 300.26, around 1.54% above its 295.72 50-day. Both lost ground Tuesday, so the broadening thesis clearly weakened.

But neither has lost its medium-term trend. That also means the RSP and QQQE also remain more than 2.5% above their respective 50-day averages.

The equal-weight evidence therefore still argues against calling Tuesday the start of a confirmed market-wide breakdown as Technology suffered the most damage, breadth deteriorated across the market, but the broader medium-term structure remains intact for now.

If MDY and IWM subsequently lose their 50-day averages as QQQ breaks its own, the selloff becomes much more difficult to dismiss as a technology reset.

Strong ADI Numbers Offer a Counterpoint to the Chip Rout

Analog Devices reported before the open this morning, and the results were strong.

Third-quarter revenue rose 40% to $4.02 billion, ahead of the $3.92 billion consensus, while adjusted EPS of $3.45 beat the $3.33 estimate. ADI expects fourth-quarter revenue around $4.3 billion, above the roughly $4.07 billion Wall Street forecast, with adjusted EPS of $3.86 versus consensus of $3.54.

The stock is roughly flat premarket and that is an interesting read after Tuesday’s semiconductor rout.

The fundamental demand picture has not suddenly collapsed. ADI specifically cited broad-based strength, including data-centre and industrial demand. The current chip selloff is therefore at least partly about valuation, positioning, rates and concern over returns on AI spending rather than evidence that semiconductor demand itself has disappeared.

Oil Remains the Macro Problem

Treasury yields are easing slightly this morning, but they remain elevated.

The 10-year is around 4.70% and the 30-year 5.28%, after the long bond touched its highest level in nearly two decades Tuesday. The dollar index is down around 0.3% at 99.36.

Those moves provide some relief to growth stocks, but oil is moving the other way.

Brent is up around 0.9% at $91.79, with WTI near $85.79. Commercial traffic through the Strait of Hormuz remains close to fully disrupted as the U.S. and Iran continue to contradict each other over whether the waterway is open.

That keeps the inflation risk alive even as recent U.S. economic data has weakened.

The Fed minutes at 2 p.m. ET therefore arrive into an awkward mix: softer domestic growth and inflation data on one side, but elevated energy prices and long-term borrowing costs on the other.