The recent optimism following the Federal Open Market Committee (FOMC) meeting quickly dissipated, leaving investors reassessing their positions. Futures contracts for both the S&P 500 and the Nasdaq 100 experienced a sharp reversal, primarily driven by escalating US-China tensions and emerging concerns surrounding potential export violations related to the artificial intelligence (AI) firm DeepSeek. This shift in sentiment was further exacerbated by a significant after-hours drop in Oracle’s stock price, raising questions about the sustainability of current AI valuations. Despite this pullback, technical analysis suggests the Nasdaq 100 maintains a constructive outlook, with key support levels holding firm.
Initial Optimism Fades: A Look at the Market Reaction
The market initially reacted positively to the FOMC’s dovish stance, anticipating potential interest rate cuts in the future. However, this rally proved short-lived. The Asia session witnessed a notable decline, with S&P 500 E-mini futures falling by 0.8% and Nasdaq 100 E-mini futures dropping by 1.1%. This effectively erased the gains made on Wednesday, signaling a swift change in investor mood.
The primary catalyst for this downturn appears to be renewed geopolitical friction between the United States and China. Reports indicate that Chinese AI company DeepSeek has acquired Nvidia Blackwell chips through illicit channels. These chips are subject to export restrictions aimed at preventing China from developing advanced AI capabilities. This development raises concerns about the enforcement of export controls and the potential for further escalation in trade disputes.
Oracle’s Plunge and AI Valuation Concerns
Adding fuel to the fire, Oracle’s stock price plummeted 11.5% in after-hours trading. This decline was triggered by weaker-than-expected revenue figures for the second quarter, reigniting anxieties about inflated valuations within the AI sector. Oracle’s performance served as a reminder that even prominent companies benefiting from the AI boom are not immune to financial pressures.
The market has been particularly sensitive to AI valuations, with many companies trading at high multiples based on future growth expectations. Any indication of slowing revenue growth or increased competition can lead to a rapid correction in stock prices, as seen with Oracle. This event contributed to the broader weakness in index futures, as investors reassessed the risk-reward profile of AI-related investments. The impact on tech stocks was particularly noticeable.
Nasdaq 100 Technical Analysis: A Silver Lining?
Despite the negative sentiment, a closer look at the Nasdaq 100’s technical indicators reveals a more nuanced picture. While the intraday pullback is concerning, the underlying technical structure remains relatively strong, suggesting a potential for recovery.
Improving Market Breadth
One key indicator is market breadth, which measures the number of stocks participating in a market trend. Over the past three weeks, the Nasdaq 100 has seen a significant improvement in breadth. As of December 10, 2025, 65% of the index’s component stocks are trading above their 20-day moving average, a substantial increase from the 23% recorded on November 17, 2025.
Similarly, the proportion of stocks trading above their 50-day moving average has risen from 28% to 56% over the same period, albeit at a slower pace. This broadening participation suggests that the recent rally was not solely driven by a handful of large-cap stocks, indicating a more sustainable upward trend.
Bullish Reversal Bias Remains
The Nasdaq 100 CFD Index, a proxy for the Nasdaq 100 E-mini futures, continues to exhibit a bullish reversal pattern that began forming on November 21, 2025, following a low of 23,840. This pattern suggests that the market may be transitioning from a downtrend to an uptrend.
Crucially, the 25,165 level remains a pivotal support area. As long as this support holds, the bullish bias remains intact. A breakout above the 25,745 level could trigger a new impulsive up move, potentially leading to a retest of the all-time high at 26,288. Further resistance is anticipated in the 26,480/26,545 range, based on Fibonacci extension levels. The index is also trading above its rising 20-day and 50-day moving averages, reinforcing the positive technical outlook. The 4-hour RSI momentum indicator has also rebounded from a key ascending support, hinting at a potential revival of bullish momentum.
Potential Risks and Alternative Scenarios
However, it’s important to acknowledge the potential risks. A failure to defend the 25,165 support level would invalidate the bullish scenario and could initiate a deeper corrective decline. In this case, the Nasdaq 100 CFD Index could retest support levels at 24,540 and 24,000, which represent critical swing lows from October 10 and November 21, 2025, respectively. Monitoring market volatility will be crucial in the coming days.
Conclusion: Navigating Uncertainty in the Market
The recent market pullback, triggered by geopolitical risks and concerns about AI valuations, serves as a reminder of the inherent volatility of financial markets. While the initial optimism following the FOMC meeting has faded, the Nasdaq 100’s technical indicators suggest that the medium-term bullish reversal bias remains intact.
Investors should closely monitor the 25,165 support level and be prepared to adjust their strategies accordingly. Staying informed about developments in US-China relations and the performance of key AI companies will also be essential. Ultimately, a cautious and data-driven approach is warranted in this uncertain environment.
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