Rare Nasdaq signal that predicted major market shifts flashes bearish warning

For most investors, the spotlight remains firmly on technology. Artificial intelligence continues to dominate headlines, the Nasdaq has pushed to fresh highs, and many believe the path of least resistance is still higher.

But when you zoom out to the three monthly candles, a different picture begins to emerge.

One of the most reliable ways to cut through the day-to-day market noise is by looking at higher time frames. Three monthly candles don’t generate many signals, but when they do, they’re often associated with major turning points rather than short-term swings.

The Nasdaq has recently completed a new three-month candle, and in doing so has produced a bearish crossover on the Stochastic RSI from an extremely overbought level.

Historically, similar conditions have appeared around major market turning points, including 2014, 2018 and 2022. Interestingly, those dates also align closely with the US midterm election cycle, where markets have frequently experienced increased volatility before the next phase of the bull market emerged.

Technical indicators are not crystal balls. They don’t tell us exactly what will happen next. What they do provide is context. When the market reaches historically stretched conditions and long-term momentum begins to roll over, it deserves attention.

The Magnificent Seven carried global equity markets out of the 2022 bear market.

Companies such as Nvidia, Microsoft, Apple, Amazon, Meta, Alphabet and Tesla accounted for a disproportionate share of index performance over the past few years. They weren’t just participating in the rally. They were the rally.

However, leadership appears to be changing.

One of my favourite charts compares the Magnificent Seven against the S & P 500 itself. By removing the direction of the overall market, it simply asks one question: are the market leaders still outperforming?

The answer throughout 2026 has increasingly been no.

The ratio peaked late last year and has since continued making lower highs and lower lows on weekly candles and has underperformed the market by double digit percentages in 2026. While the broader indices have remained relatively resilient, the companies that previously drove those gains have quietly been losing relative strength.

Markets rarely lose leadership overnight. More often, the leaders begin underperforming months before the broader indices fully reflect the shift.

A common argument is that money may simply be rotating from large technology companies into smaller companies.

On the surface, that sounds plausible.

But the Russell 2000 tells a similar story.

Like the Nasdaq, the Russell has also reached an extremely overbought position on the three month time frame and has recently produced a bearish Stochastic RSI crossover.

Historically, previous occurrences have been followed by significant corrections, with declines ranging from approximately 25 per cent to almost 60 per cent. While history never guarantees the future, the consistency of those past outcomes suggests this is another signal worth monitoring closely.

If both the Nasdaq and the Russell 2000 are beginning to lose momentum simultaneously, it raises an important question.

Where is capital rotating?

One of the more interesting relationships over the past two decades has been the rotation between technology and energy.

While not perfect, periods of technology weakness have often coincided with improving performance from energy stocks.

Today, that relationship is becoming increasingly interesting again.

Oil has retraced back towards a major long-term support area, effectively filling the price gap created during the geopolitical rally following the outbreak of war.

At the same time, Australia’s energy sector has become deeply oversold on higher time frames and has recently begun generating bullish momentum signals.

Rather than becoming more extended, the sector appears to be emerging from a prolonged period of underperformance.

Individual companies such as Woodside are beginning to display improving technical structures, suggesting investors may already be positioning ahead of a broader sector rotation.

None of this suggests technology’s long-term growth story is over.

Nor does it mean energy will suddenly become the market’s best-performing sector tomorrow.

These are three month charts. They are designed to identify structural shifts that can take many months, to fully develop.

The key takeaway is simply this.

The sectors that led the last bull market are showing signs of fatigue on long-term charts for the first time since late 2021, while one of the market’s most unloved sectors is beginning to show the opposite.

If history is any guide, the next major investment opportunity may not come from chasing yesterday’s winners.

It may come from recognising tomorrow’s leaders before everyone else does.