Nasdaq was hit with the “DeepSeek” shock yesterday. The Chinese AI startup became a reality check for investors and companies investing in AI-related firms with high valuations. The U.S. stock market lost nearly $1 trillion in a single day amid fears that less investment may be enough for developing AIs and that U.S. dominance in the AI market could be at risk. It remains unclear whether the panic will persist or if this presents a buying opportunity for market bulls, as there are arguments for both perspectives. 

The rapid growth of the AI market has supported high valuations for some time now, and this trend is likely to continue. Any retreat may be seen as a buying opportunity, but at the same time, it also makes occasional selloffs more intense than usual. The fear of a fundamental change is unsettling traders, but the fear of missing out is likely to limit the severity of downward movements. 

In the long term, the potential for lower costs in AI development is likely to be positive for the market and for companies like Nvidia. More companies could enter the competition, and tech giants would likely increase investments to maintain their market share. However, for the remainder of the week, volatility will likely persist due to factors such as DeepSeek pricing, the Federal Reserve and ECB decisions, ASML and Tesla earnings, and key U.S. economic data, including GDP and PCE figures. 

(Nasdaq – Percentage of Members with MACD Buy and Sell Signals) 

A concerning technical signal has formed over the last few days. Occasionally, when the percentage of Nasdaq Composite members giving a MACD buy signal within the last 10 days exceeds 20%, and the percentage of sell signals falls near 5%, the Nasdaq tends to form a local top and begin a mild correction. The same signal appeared this week, and combined with the news of DeepSeek, markets are looking shaky. 

 (Mini Nasdaq Daily Chart) 

However, despite the panic and negative technical signal, the uptrend channel remains intact, supported by the 100-day moving average and the 23.6% Fibonacci retracement level. If the 100-day moving average fails, a deeper retreat could be triggered. Early in the trading session, Nvidia is up 5%, which is a positive signal for the trend to hold. Volatility is likely to remain elevated throughout the week.