Nasdaq's 2.7% jump broadens tech rally, but staying power is uncertain

Dip buyers appeared to view last week's tech selloff as a buying opportunity. The Nasdaq opened the week with a 2.7% gain, while the SOX jumped roughly 6.9%. The recovery followed a sharp decline for technology shares.

Questions remain over whether this rebound marks a sustained rally or a temporary correction.

The Nasdaq still trails its October close despite the strong Monday. Semiconductor stocks are around 6% below their late October levels, after a 12% drop the prior week.

The sharp bounce is unsurprising. Sharp drops can make rebounds look spectacular.

Yet there are encouraging signs beneath the surface.

AMD jumped 13.3% and Broadcom rose 8.8% on Monday. Twenty-nine of the thirty members of the semiconductor index ended higher.

Nvidia was the exception, falling over 4%. The AI bellwether's decline was linked to controversy around CEO Jensen Huang, not a signal of weakening AI demand.

Nvidia's drop should be separated from the broader chip sector narrative. The sector's rally despite weakness in its largest member points to buying interest spread across multiple names.

What is the risk?

Strong breadth signals returning buyers, but fails to confirm they will stay.

The Nasdaq's ability to hold the 200-day moving average is a key metric to watch after reclaiming it. The SOX still sits below its own 200-day measure, leaving significant ground to recover despite the day's bounce.

Sustained market breadth alongside overcoming these levels would build a case for a recovery extending beyond Monday.

Today's US CPI data presents the next real test. Hotter inflation would strengthen expectations of a December Fed rate hike. Fed Governor Waller raised the stakes, noting that a core monthly CPI reading at 0.3% or higher could warrant a larger 50 bps rate hike in December.

The Monday bounce looks convincing for a single session. Luring buyers in is the easier part; retaining them is the true challenge.