The Short-Term Correction Nears Its End: What Technicals Reveal About the Stock Market

The market continues to digest the post–Q2 earnings wave, with sentiment held back by Powell’s cautious tone, Trump’s pressure on the Fed, and a seasonal period that has historically been weak for equities. Yet, technical indicators now suggest the recent correction is approaching its conclusion. The charts have shifted into a semi-bullish formation, and major AI-linked stocks are beginning to stabilize. Investors should prepare for what may come next.

Market Already in “Higher-Low” Mode, Nvidia in the Spotlight

Powell’s openness to a September rate cut, stressing a more balanced risk outlook, gave equities a lift on Friday. The S&P 500 has now formed a “higher-low” structure, signaling a semi-bullish pattern. Still, Monday’s session showed limited follow-through, as the 3-day moving average has not yet crossed above the 7- and 10-day averages. Without that confirmation, investors remain hesitant. The index also trades just 0.6 percent below its record peak, a level that doubles as a critical resistance line.

The Nasdaq 100 shows a similar setup, with its “higher-low” pattern in place but short-term averages still lagging behind. Importantly, the index’s ceiling is defined by its July 31 high at 23,584, while the S&P’s is tied to mid-August levels. This subtle divergence points to relative fatigue in tech names compared to the broader market, highlighting why momentum has stalled.

For now, all eyes are on Nvidia’s earnings on Wednesday. The company is expected to post strong numbers as Microsoft, Google, and other cloud giants continue pouring capital into AI infrastructure. Emerging demand from humanoid robotics and autonomous driving could also provide a fresh growth engine. Still, sentiment is fragile, and expectations run high, leaving the stock vulnerable to disappointment. Should Nvidia underwhelm, investors will have to watch key support levels closely for signs of another consolidation phase.

AI Stocks Seek a Bottom

The bulk of AI-related favorites have retraced sharply, regardless of how impressive their Q2 results initially looked. Microsoft, TSMC, and Palantir surrendered all post-earnings gains. Meta has fallen nearly 3 percent in August, while Oracle and AMD are down more than 7 percent. Nvidia-backed CoreWeave has plunged 50 percent from its peak. Recently, though, these names have begun to stabilize, suggesting investors are testing for a bottom.

Meanwhile, Tesla and Amazon, both hit hard after earnings, have staged recoveries. Google even managed to notch a fresh all-time high. The sell-off has made valuations more appealing, particularly for Google, where its Gemini model and AI capabilities remain underestimated. That dynamic has encouraged some investors to rotate into perceived “value” AI stocks, while trimming exposure to pricier names.

This divergence is telling. Capital is flowing toward the underperformers while earlier winners are being sold, reflecting concerns about stretched valuations. Yet the market is not dismissing AI’s monetization potential; rather, it is approaching the theme more rationally. That moderation could itself set up attractive entry points, as the reset in once-hyped names may eventually reignite momentum.

Stablecoins and Crypto Lose Momentum

The enthusiasm for stablecoins and cryptocurrencies has also cooled. Circle shares have dropped by more than half since June’s high, trimming year-to-date gains to around 300 percent. Coinbase is down over 30 percent from its recent peak, with trading volumes fading as retail participation thins. These moves underscore the return of caution, as investors reassess how quickly the crypto industry can deliver tangible adoption. The innovation is real, but the path forward must now be grounded in practicality.

Value Rotation Gives Dow the Edge

In contrast, the Dow Jones Industrial Average continues to hover near record levels. The strength reflects broad resilience across banking, manufacturing, and consumer sectors, with the solid economy offsetting tariff concerns. The divergence between the Dow and Nasdaq highlights the ongoing investor preference for value-driven stocks over hype-driven trades.

What we are seeing is a classic correction. Former leaders in AI and crypto have seen their valuations compressed, while previously overlooked names are attracting new interest. Technicals point to a healthier foundation, with the “higher-low” structure setting the stage for the next leg upward. As sentiment stabilizes, the market appears ready to transition into a more sustainable phase of bullish momentum.