Nasdaq Faces Pullback to 26,225 Despite Bullish Outlook, UBS Says

UBS technical analysts have warned that the Nasdaq Composite Index could retreat toward 26,225.09, even after its recent rally pushed the technology-heavy benchmark to 27,190.86. The investment bank expects the index to correct lower as weakening momentum and unresolved price gaps suggest a potential short-term reversal.

Since UBS last reviewed the Nasdaq on October 5, the index has climbed beyond the firm's anticipated trading range, outperforming expectations for an earlier pullback. However, technical indicators now suggest that the rally may be losing strength despite continued investor interest in technology stocks.

According to UBS, the Nasdaq's price movement has diverged from its upper Bollinger Band, a widely followed technical indicator used to assess market volatility and potential overbought conditions. At the same time, upward momentum has weakened, raising concerns about the sustainability of recent gains.

A major factor behind UBS's cautious near-term forecast is the presence of three unfilled price gaps formed on September 17, September 21, and October 2. These gaps emerged during periods of rapid market advances and could attract selling pressure as traders anticipate a technical correction.

UBS expects the Nasdaq Composite to decline toward 26,225.09, potentially closing those gaps before establishing a stronger foundation for another upward move.

Despite the anticipated correction, the bank maintains its broader bullish outlook on the Nasdaq. The index continues to trade above the Ichimoku Cloud, a technical indicator that helps identify market trends, momentum, and potential support or resistance levels.

UBS identifies 27,548.13 as an important upside resistance level. Although the Nasdaq has already reached that target, it has yet to establish a sustained breakout above it.

If buying momentum strengthens and the index clears that resistance, analysts see the next potential upside target at 28,367.97.

However, UBS emphasized that its bullish assessment would only face a significant challenge if the Nasdaq closes below 24,425.34. Such a move could prompt the firm to reconsider its positive market outlook and potentially adopt a bearish stance.

For investors monitoring the Nasdaq Composite, the key question remains whether the index will first undergo a technical pullback or resume its upward trajectory toward higher resistance levels.