Goldman Sachs Identifies Key Trend Lines; Nasdaq's Last Line of Defense Is in Jeopardy

The Nasdaq 100 Index has fallen for four consecutive weeks, with a multi-year trendline serving as the market's last technical support, now facing a decisive test.

Peter Callahan, Goldman Sachs' Chief Expert for Technology, Media, and Telecom sectors, clearly pointed out in the latest weekly report that the Nasdaq 100 Index is retesting a critical benchmark trendline connecting the April 2025 low and the March 2026 low. Last Thursday's closing price of around 26,630 points landed almost exactly on this line, and on Friday, driven by a rebound in semiconductor stocks, the index closed at 26,990 points, just about 1% above the trendline, but still more than 14% below the all-time high of 31,361 points set on October 6. Callahan wrote that the importance of this level is hard to overstate.

If the trendline is breached, Callahan's chart shows the next obvious support level is near the March 2026 low, around 23,000 points, implying an additional roughly 15% drop from current levels. Meanwhile, market extreme sentiment indicators are flashing red across the board—last Thursday saw the largest single-day put option volume in the history of the Chicago Board Options Exchange, and Goldman Sachs' flagship semiconductor stock basket saw volatility soar to 93, the highest level since April this year.

The Nasdaq 100 Index dropped about 5% last week, marking its fourth straight week of declines. The Philadelphia Semiconductor Index (SOX) has plummeted 28% over the past 22 trading days. Callahan noted, this pace of decline has only been matched a handful of times since 1997, including the bursting of the internet bubble, the 2008 global financial crisis, and the COVID-19 shock.

Callahan made no effort to mask his description of current sentiment: "It's hard to overstate how tough the market is"—even as bottom-up data points like memory pricing, computing pricing, supply-demand visibility, and third-quarter earnings remain strong, the AI and semiconductor sectors have entered a "rolling bear market" since this summer, having fallen about 40% from their peaks. Meanwhile, macro uncertainty surrounding policy and the direction of Congress is "difficult to model."

In short, while the fundamentals still look solid, stock prices keep falling, and the market has begun to price in scenarios unlikely to occur until 2028.

Callahan described last week's market liquidity in his weekly report as follows: record put option volumes, a sharp rise in ETF trading volumes, volatility indicators with "panic" characteristics, high sell-side skew, and severe technical oversold conditions.

His interpretation is that, from a technical perspective, all these factors "could be said to help lay the groundwork for a subsequent technical rebound"—but he hedges with phrases like "could be said" and "to some extent." By sell-side standards, this is close to implying "don't expect too much."

Bank of America strategist Michael Hartnett takes an even more cautious stance. According to Bloomberg, he pointed out that the SOX is now 17% below its 200-day moving average, while since 1996, real buying opportunities have usually appeared when the index is 20% to 25% below its 200-day average, meaning "bottom fishers" may have to endure more pain. Morgan Stanley's Nick Savone noted that last Thursday's single-day plunge of 12.2% for the SOX was the index's second-largest one-day drop ever, and the forward two-year P/E ratio for the semiconductor sector has fallen into single digits for the first time in five years.

The selling pressure is even more intense in Asia's AI supply chain. Callahan cited Asian capital flows showing that, as of the week ending November 6, emerging Asia (excluding China) saw a net foreign outflow of $21.7 billion, the second-largest weekly outflow on record, with Taiwan (-$15.7 billion) and South Korea (-$8.0 billion) bearing almost the entire brunt.

The largest weekly outflow in history occurred just four weeks ago, reaching as much as $27.6 billion. Over a longer timeline, nine of the top ten largest weekly outflows occurred in 2026, with the only exception being the COVID-19 shock in March 2020.

Callahan specifically highlighted a "disturbing" chart in his weekly report: the three DRAM giants, Micron (MU), SK Hynix, and Samsung, are now trading at forward P/E ratios of 3.8x, 2.2x, and 2.6x, respectively. Meanwhile, the DRAM spot price index has risen more than tenfold since the end of 2024 and remains near historic highs.

The logic behind such extreme undervaluation is: investors believe current earnings are at the top of the cycle and anticipate that as data center construction slows in 2028, today's supply shortages will turn into tomorrow's excess capacity. To this, Callahan simply commented: "Tricky, right?"

TrendForce expects DRAM contract prices in the fourth quarter to rise about 20% quarter-on-quarter, lower than 40% in the third quarter and 80% in the second quarter, with the momentum of contract price increases slowing down.

Regarding the flow of safe-haven funds, Callahan observed that the consumer staples sector has been chased by capital, but valuations are significantly overstretched. The valuation premium of S&P 500 consumer staples relative to the broader S&P 500 has risen to its highest in over a decade, about six P/E points higher, whereas the long-term average is about one point. More extremely, the current 24-month forward P/E ratio for the consumer staples index is about twice that of the semiconductor index—in other words, toothpaste and cereal are valued at double the chips powering global data centers.

Within large-cap tech stocks, analog semiconductors were once seen as a relative safe haven, and Texas Instruments (TXN) showed some resilience, but also broke support at the end of last week. Meanwhile, Caterpillar (CAT) has nearly halved from its June peak, dropping from about $1,060 to $559.

Callahan reckons it won't be long before investors begin focusing on those "whose gains may already be too much." Goldman Sachs' Delta One team is already holding short positions on the consumer staples basket and is reaping positive swaps returns.

For the bulls, perhaps the most frustrating signal comes from earnings data itself: the information technology sector continued to lead the market during the third-quarter earnings season. According to Goldman Sachs' portfolio strategy team, 80% of tech companies beat consensus earnings estimates by at least one standard deviation (compared to 62% for the entire S&P 500), and only 2% issued downward revisions. On revenues, 75% beat by at least one standard deviation, with none issuing an equivalent downward revision in revenues.

Yet the market is indifferent, and the reason is clear: investors have stopped paying for current realized profits and are now discounting expectations that may not come to fruition in 2028. As Callahan put it, this is a market "managed day by day," not one that rewards expected gains.

This week is packed with catalysts. Tuesday's release of CPI data (core CPI expected month-on-month +0.3%) is seen as key to whether the Fed hikes rates in December, while TSMC's monthly sales and CoreWeave's earnings will be released the same day. Applied Materials and Nvidia are due to report on Thursday and at the end of the month, respectively—both widely watched potential inflection points for the market.