Risks are building medium- to long-term, but the Nasdaq 100 is getting oversold on the daily chart.

After major U.S. equity indices reversed on February 9, tech-heavy indices were the only ones to rally to new highs.

The Nasdaq 100 index peaked on January 26 at 7022.97, which then got taken out on March 9, subsequently rising to a new high of 7186.09 two trading sessions later. Other indices, such as the S&P 500 large-cap index, the Dow Industrials and the Russell 2000 small-cap index could never surpass their respective late-January highs.  The latter came close.

As it turns out, the breakout on the Nasdaq 100 was false. Soon, an island reversal developed (box in Chart 1). The new high itself came in a bearish engulfing session.

As things stand, the technical picture has deteriorated on these indices. The 50-day moving average, for example, has turned lower on all these. On Tuesday, the Nasdaq 100 came within 24 points of testing the average and was rejected.

One of the things tech, in particular, has been a beneficiary of is persistent aggression shown by the shorts.

Post-presidential election in November 2016, short interest on XLK (SPDR tech sector ETF), took off (arrow in Chart 2). Shorts stayed put, as the ETF rallied, and rallied even more. The green bars peaked mid-December last year. Short interest has dropped 46.5 percent since then. It was a classic squeeze, and that tailwind is now pretty much gone. This is likely one reason why the bulls were unable to build on the breakout two weeks ago.

The footprint of short squeeze is also evident in QQQ (PowerShares QQQ Nasdaq 100 ETF).

By mid-February this year, short interest stood at 84.6 million. A month later, this had declined 33.8 percent to a three-and-a-half-month low.

On SMH, shorts have not left in droves – as in XLK and QQQ – but the trend is down in the past four months (Chart 4). Although going back a year, the trend is still up. These shorts are staying with their losing positions; in 2017 alone, the ETF jumped 36.5 percent.