Nasdaq 100 — Under Its September Low; Health Care Leads, the AI Builders Retest Theirs

1 · This Week's Action

Two stories, not one. A week of selling usually reads as one story. This one had two, and they point in different directions. The first is relative strength: health care, the companies that use AI, and the four large builders the books hold kept rising or held while the rest fell. The second is a bottom: the AI build-out index came back to its July low for the second time in two weeks, at the halfway point of its 2026 rally. Both are in §3. First, the tape.

The index. The Nasdaq 100 fell 1.98% on the week to 28,385 — under its September low close of 28,938 and under the September intraday low of 28,753. It is the index's first close under 28,500 since 31 July, 9.1% under its October 6 record of 31,224 and 4.7% under its 50-day average of 29,796. The July low close, 27,192, is 4.2% below. The S&P 500 fell 0.57% to 7,580, 3.1% under its record; the fund closed at 755.72, 1.5% under its 50-day.

Most of it came on Friday. The Nasdaq 100 fund walked +1.1%, +1.3%, +0.6%, −1.4%, −3.5%; the S&P fund +0.7%, +0.6%, +0.3%, −0.4%, −1.8%. Three up days into the Fed and the mega-cap reports, two down days after them — and on Friday Intel's 30% fall on its outlook took the chip index down 8.2%.

The average stock beat the index again — a fourth week. The equal-weight S&P rose 0.82% to 218.31, 1.5% above its 50-day; small caps rose 1.30%. The Nasdaq 100 without tech rose 0.75%, the S&P without tech 0.13%, the S&P without the Magnificent Seven 0.78% — while the Magnificent Seven fund fell 2.27% to 68.48, 3.4% under its 50-day.

Health care and staples against tech

The pattern on the editor's charts: when tech falls, health care and staples rise. The two charts below box the phases. Since the tech fund's record close on 6 October, health care rose 10.6%, staples 9.3% — and tech fell 11.1%. In October alone: +9.8%, +10.9%, −8.3%.

The editor's chart: XLV and XLK over one year — the boxes mark the phases in which they went separate ways.

The editor's chart: XLP and XLK over three years — staples' early-2026 run came while tech moved sideways to lower; the October box is the same shape again.

How often, in numbers. Over three years the weekly returns of health care and tech barely move together — a correlation of 0.10; staples and tech −0.01. Over the last 26 weeks it is −0.42 and −0.53: they now move against each other. In the 77 weeks in which the tech fund moved more than 2%, health care went the other way in 34 and staples in 37 — close to half. One nuance from the first box: in the first quarter of 2026 staples rose 5.3% while tech fell 9.8%, but health care fell 7.5% too — its box is a range at the highs, not a rise. It is a tendency, not a law — and it has become a strong one this half-year.

Spotting it early — the flow, and the flow's speed. The house Directional Flow reads whether money is moving into or out of an instrument. Its level says how strong the flow is; its momentum — how fast that level is changing over 5 and 21 sessions — says where it is turning. Read on these three funds, the momentum was early twice and late once:

• Health care — early. The flow's momentum was negative from April to June. It turned positive in the first days of July and has stayed positive since; the flow level rose from 5.5 to 21.8. The fund was at 159.54 on 1 July; it closed Friday at 184.87, +15.9%, most of it in October. On Friday's scan health care reads "accelerating up".
• Tech — the slowdown was early, the turn was late. The momentum peaked in June and faded all summer, from +14.6 to +0.5 over 21 sessions by mid-September. It only turned negative on 16 October — after the price top of 6 October. The flow level is still high, 43.2: the level alone said "strong"; the momentum said "fading" for four months.
• Staples — late. The momentum was negative through September and October while the price rose 11% in October; it turned up only on 23 October. Here the price moved first.

The read: the flow's momentum is the early signal, the level the late one — two cases out of three, and the third is the reminder that no gauge is early every time.

The eleven S&P 500 sectors

Nine of eleven up, in a week the S&P fell. Health care +3.12% to 184.87, materials +2.79%, utilities +2.04%, discretionary +2.02%, industrials +1.69%, real estate +1.41%, staples +1.31%, financials +1.09%, energy +1.00% to 70.02 — its highest close of the year. The red: technology −2.03% and communication services −5.32%.

Against the S&P. Health care beat it by 3.7 points on the week, materials by 3.3, utilities and discretionary by 2.6; communication trailed by 4.8, tech by 1.5. Over 21 sessions the gap is wide: energy +12.8 points, staples +12.4, health care +12.3, utilities +10.5 — tech −8.2, communication −8.0.

Breadth — health care broad, tech thin. In health care 45 of 59 members closed above their 50-day average and 48 above the 20-day. In tech 28 of 72 are above the 50-day and 20 above the 5-day — the sector's index fell 2% while most of its members fell more.

The Nasdaq 100, cut six ways

The week: the Nasdaq 100 without tech +0.75%, its 70 smaller members −0.6%, the US top-20 fund −0.9%, the Nasdaq 100 −2.0%, its 30 largest −2.4%, Nasdaq tech −2.5%. On the year the order is reversed: tech +27.2%, the 30 largest +12.2%, the index +12.4%, the smaller 70 +11.2%, ex-tech +0.6%. Outside the Nasdaq, the S&P without the Magnificent Seven rose 0.78% and the Magnificent Seven fund fell 2.27%. The half of the market that owns the AI trade fell; the other half rose for a fourth week.

Momentum against low volatility — a third week of defence. Momentum fell 1.72%, low volatility rose 1.52%. The ratio stayed well under its 50-day average — indexed 148.2 against a trend line at 159.5 — and the factor board reads below trend.

The tech ETFs we carry

Five of twenty-one green — and last week's leaders were at the bottom. Cloud (CLOU) −7.56%, software (IGV) −5.70% to 104.29, digital transformation −5.60%, the internet fund −5.31%, cybersecurity −4.80%. The chip funds ended almost flat — SOXX −1.40% to 471.51, SMH −0.89%, XSD −0.36% — after rising three days and falling 8% on the fourth. The green was small and physical: defence tech +3.05%, uranium +1.52%, the internet of things +1.26%, the smart grid +1.12%, data centres +0.55%.

Software gave the lead back. IGV closed at 104.29, under its 50-day of 106.99 — the close last week's letter named as the sign that software's week was a bounce, not a handover. The cloud fund closed at 28.02, 8.6% under the 2026 high it made on Monday; cybersecurity at 101.03, on its 50-day. ServiceNow fell 33.9% on the week after a two-cent miss, Atlassian 14.9%, Datadog 12.8%, Salesforce 7.8%.

The names in one line each. Up: Lilly +11.3% to 1,417.54, Lumentum +11.2%, SK Hynix +8.9%, Synopsys +8.7%, KLA +8.5%, Tesla +7.4%, Western Digital +6.5%, Amgen +6.1%, Advantest +5.0%. Down: ServiceNow −33.9%, Intel −24.4% to 65.76, Atlassian −14.9%, Marvell −14.1%, Cloudflare −13.8%, Datadog −12.8%, Alphabet −12.6% to 279.84, Caterpillar −9.4%.

The four indices

The Russell 2000 +1.29% to 2,812, the S&P 500 −0.57%, the Dow −0.9%, the Nasdaq 100 −1.98%. The small caps led for a third week; the Nasdaq fell the most, and all of it after Wednesday. On the year the small caps lead, +13.3%, ahead of the Nasdaq 100 at +12.4%, the S&P at +10.7% and the Dow at +7.7%.

The Treasury curve

The ten-year closed at 4.93% on the house sovereign board, from 5.00% — the first weekly close under 5% since the 5.31% peak of 5 October. The thirty-year closed at 5.31%, the two-year at 4.60%. The long bond rose 0.61% to 81.84, a second week above its 81.2 line; the gaps from mid-October stay open.

The Fed held — and the market prices a hike. The Fed kept its range at 3.75–4.00% on Wednesday in a 10–2 vote; Governor Cook and Cleveland Fed President Hammack preferred a quarter-point increase. The statement said the economy is "expanding at a strong pace" and inflation "remains elevated", and gave no rate path. After Thursday's third-quarter growth of 3.4% and September's 3.6% inflation reading, CME FedWatch put a December hike near 80%. The ten-year fell anyway: the bond market is pricing one more hike and a slower economy after it.

The dollar

The dollar fund closed at 29.00, +0.14% — flat, a few cents under its 12 October high of 29.13. The yen weakened from 156.74 to 157.52.

Gold — the support broke

Gold fell 2.95% to 355.78 — under the 364 support on the editor's chart, and its lowest close of the past year. Two falling lines frame the year: one from the March high into the summer, one from the late-August high into October. The horizontal line near 364 held the summer lows; Friday closed under it. The line near 441 is the year's broken middle.

The editor's chart: GLD over one year — two falling lines, the support near 364 (lost on Friday) and the line near 441 above.

Last week gold fell while yields fell; this week again. A falling metal in a week of falling yields and a firm dollar is the market pricing slower growth, not inflation — the same message the bond market sent.