As discussed on numerous occasions before, the 2023/24 rally has been largely predicated on a lopsided rally of mega-cap tech stocks on the waves of generative AI, while the other market segments (specifically small growth) has been whipsawing and/or flat for years.
As the leaders go, so goes the market. Perhaps the latest wave of FOMO stocks collapsing was an early warning sign of the impending weakness of the true market leaders.
NVDA has been the first and biggest-cap- (though not strongest) leader of the rally, jumping a renewed 1,200% off the bear market bottom in late 2022, so far achieving approx. 335% in excess its 2021 top. If anything can tank this market, it will be weakness in this name and its related stocks.
Since yesterday, this is just what we might be about to witness. NVDA sold off heavily on news from a Chinese AI startup, gapping -17% in a single day on a massive 261% increase in volume.
This move was mirrored in exacerbated fashion by other smaller yet still liquid and leading stocks from the same space -30% on VRT, -28% on VST, -22% on TLN, -28% on ALAB, -26% on OKLO, -31% on CRDO, and a slew more.
Every decline starts small, and the next weeks/months will tell how far this volatility might just go. Since we have been in a ‘new-era‘ rally, exuberance can always heat up even more, and we might see continued rally on the indices (specifically those heavy in other mega-caps). However, as the leaders go, do typically does the market as well.
Be careful with renewed exposure, and monitor your holdings attentively. Stop loss orders on positions in the leading names is the best way to monitor health of the market.
So long,
TGS
