It would be an understatement to say today was a bloody day in the markets. Not just the stock market, but crypto as well. Realistically, this bloodbath began last week, as Big Tech stocks started to melt down for no apparent reason. We even suggested the bubble may be coming to a rapid halt in one of our recent article on Tesla and NIO. In the article, we posed the question “Is the EV bubble over?” Although we speculated that there would be one more pump in the article, as a result of large purchases of Tesla stock by ARK’s champion trader Cathie Wood, we essentially had a feeling that the road ahead is going to be quite bumpy for stocks. And not just the EV sector. The selloff of the past couple days has hit virtually every sector, from EV’s to crypto, penny stocks and everything else in the 2020 bubble universe. But, for this article, let’s discuss why Nvidia Stock Got Annihilated Today.
Red Rum Volatility
First of all, the stock market has been melting down for the past several trading days. This selling has been masked by DECREASING volatility and several sectors staying afloat.
Personally, I have never seen anything like this. Even though the market was getting a beatdown, volatility was moving down with the market. Then finally, yesterday, volatility ETFs like UVXY and VXX got murdered.
This is what I recognized as “exhaustion selling.”
As a result, I started to load up on UVXY shares. In retrospect, probably should have bought 100,000 calls, it was so obvious. The calls are up massive today, but I digress.
This exhaustion selling on these volatility ETFs is all one needs to see to understand that the market was about to get annihilated.
Just go back and look on virtually any stock or crypto chart during the 2020 bear market. As soon as every stock experienced a dramatic fall in prices, it was only a matter of time before they reversed and annihilated the shorts.
And so it goes.
CRYPTO TAKES A TUMBLE
What does this have to do with NVIDIA?
In my opinion, Nvidia can be categorized as a Big Tech, Crypto and Semiconductor industry stock. If you haven’t noticed, all of these sectors got walloped today. Or, continued to get walloped, to be more accurate.
To be fair, most of these big tech giants have done absolutely nothing for about 6 months. Only recently NVIDIA broke out to new highs.
A fakeout to sucker in bulls, before a beatdown.
Amazon, Apple and Tesla have already broken through many support levels, now at the 200dma. It would not be surprising if NVIDIA took a trip there as well.
To add insult to injury, it is not just the stock market and big tech that is falling, but crypto as well.
Bitcoin has taken a beating recently, falling from its recent high of $58,000 to $47,000 where it is currently trading.
And it is not just Bitcoin, virtually all cryptos have taken a massive haircut, from Ethereum to Dogecoin. Many are down about 25%, which is technically a bear market.
Although not that uncommon for cryptocurrencies to drop 20% overnight, it does feel like this dip may last longer than the previous one.
Traders see (saw?) the bull market in crypto as a very bullish sign for stocks in the sector, particularly for Nvidia, which produces a significant portion of the graphics cards needed to mine various cryptocurrencies.
Don’t worry, we still love crypto and will always continue to buy the dip.
So What is the Cause of this Widespread Selloff?
My prevailing theory, which I suggested in the last two articles (here and here), is very simple. Follow the logic below and let me know what you think in the comments.The entire bull rally of 2020 was fueled by:
1. Unlimited stimulus money and interest rate suppression courtesy of our friends at the federal reserve
2. Extremely suppressed asset prices and excessive shorting
3. (this is important, pay attention) People locked up in their homes by the government due to the COVID19 pandemic.
All of these factors combined to create a perfect storm, and artificially manufactured the most powerful bull market (in my opinion) in history.
Every sector got pumped to high heaven, until it could not pump any more. From big tech, to crypto to weed stocks to penny stocks.
Now, the reverse is happening. Interest rates are rising with extreme rapidity. No stimulus bill has passed. No clear plan from the federal government to reopen. Not only that, but there is apparently a magical new strain that might force us to lock down again…
There is really no way to to tell if this colossal selloff has just started or is almost finished.
However, if my theory is correct and the conditions that propelled the stock and crypto markets are evaporating, then we will see much lower prices.
Which is awesome if you have a lot of cash waiting to be utilized. For those that are already feeling the pain of lower asset prices, I feel for you. I have been there many times.
Thankfully, the program designed by the Federal Reserve virtually guarantees assets to continue moving higher. Forever. Or, at the very least, until the US dollar is annihilated.
So, if you are panicking, either hedge yourself with puts or volatility ETFs or find some cash for when the bleeding stops.
NVIDIA is one of the best stocks to buy and hold forever, their product is just incredibly valuable. It is one of my favorite stocks of all time and I have been trading it for years.
Nvidia stock getting annihilated is great for those who have not had a chance to buy in.
Conclusively, we will have to wait and see if this selloff is just an overreaction or a reversal of the bull market.
We will report on this evolving situation every day, so make sure you subscribe!
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