Nasdaq finally got its woodshed moment with NVDA and SMCI both realizing significant losses. It really started in earnest when SMCI failed to post a preliminary update on earnings the way it had on the way up, and that got the ball rolling. Let’s review both the S&P and Nasdaq.
S&P
As previously mentioned, my strong belief was that the gap had to get filled on the SPX, and it finally did Friday, and then some. This is always the risk in parabolas that people don’t understand- it’s the lack of technical support. Will this correction happen in a straight line? Typically not. An A-B-C style correction would be normal, eventually retesting 4600-4800. Not a prediction, but former resistance does tend to act like a magnet.
Nasdaq
To reiterate my point, look where NQ finished Friday and look where former resistance was. Hmmm.
So yes, we have broken structure and the sky is falling, etc., but NQ has landed at daily support, so it would not surprise me at all if we get a bounce next week. If we scan out to the weekly, that support more closely aligns with the S&P trajectory.
Thoughts on Risk
As I mentioned this week, stocks are still bullishly aligned long term. Nothing has changed structurally so far, so if you are a long term investor, the only thing that’s happened is a correction, at least so far. If you are over-allocated to alpha in your portfolio, it probably feels worse. Personally, I am a bit of a whirling dervish when it comes to risk. I can de-risk far more quickly than most, and that’s by design. If I can generate 15-20% returns without big exposure, I am way ahead of the game. Even though it may seem like I am taking big risks (like the crude long that failed this week), I’m actually not. I used a relatively small stop vs. the prospect of a very good gain, and that’s fine. The problem for most investors and speculators is the desire for the “big win” on every trade, and that’s never going to work. I’ve taken over 250 different trades since the beginning of the year. Sure, I will have some nice swing trades like gold and BTC, but mostly it’s small transactions, all adding up to something good at the end of the year. I acknowledge most people don’t have the time or interest in doing this the way I do it. You also need the capital base in order to make it work effectively. Again, the public over-allocates on single names/ideas, etc. It may work one time out of 10, but the next time it will bite you in the ass. To use a baseball analogy, you want singles and doubles, not homeruns. I will gladly accept homeruns, however.
To that end, someone asked me to put SMCI on a chart, and it’s pretty scary, frankly. Does that mean it will collapse? No clue. Just repeating that parabolas are risky due to lack of nearby support. NVDA looks equally scary.