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What goes up, eventually goes down
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Times “change”, but human behavior doesn’t
It has been a euphoric year for major US indices, which remained in
positive territory despite the increasingly challenging macro environment
this year.
However, most gains were driven by investor hype surrounding AI and came from a narrow selection of stocks labelled by
the media as the “Magnificent 7”: Apple, Microsoft, Meta, Amazon, Alphabet,
Nvidia, and Tesla,
These leading tech companies have been critical in lifting the S&P 500
and Nasdaq 100 index into double-digit returns. Excluding their
contribution, both indices would have reverted to a negative year-to-date
performance.
In their recent earnings release, they all posted robust numbers, beating
expectations, except for Tesla. It missed estimates across the board as Elon
Musk cited high-interest rates as a major reason for the
abysmal Q3 results. This setback has seen Tesla’s stock plummet
approximately 33% from its 52-week highs.
Nvidia is also up for a major correction. The leading chipmaker is facing a
potential cancellation of a $5 billion China order due to US curbs. This
could be the potential catalyst that causes Nvidia to break a critical $395
support level and fall all the way to $375, as it is facing a declining head
and shoulders pattern. If it fails to hold the $375 level, this could spell
disaster and a potential nosedive to $325.
The AI mania bubble burst is another major reason as to when these seven
heavy hitters are due for or are in the middle of a correction.
Times change, but human behavior does not. Interest from Google trends in
key phrases such as “Artificial intelligence” and “AI stocks” had declined
substantially since they peaked in June, as visible by a downward pointing
red arrow.
If we illustrate those seven tech giants as one, it would be the “Magnificent
7 ETF”. It has formed a triple top that has failed to break the
resistance level three consecutive times, over the past few months, and now
the rally is deflating, as triple tops usually do not work in favour of the
bulls.
So far, Nvidia and Tesla are leading the downward trend, but others might
follow soon.
Traders are facing a dangerous cocktail of high-interest rates, escalating
geopolitical conflicts, oil prices spiking, and inflation creeping up
again, causing panic among market participants. “Big 7” collectively lost
nearly $2 trillion of their market capitalization from their 52-week highs,
as this trade is reversing.
As the tech titans tumble, so will the mighty S&P 500, as the group
collectively accounts for around 30% of the SPX’s total market
capitalization.
Traders can long constituents of the “Big 7” stocks using our:
1x Apple
, 2x
Apple,
3x Apple
1x Microsoft
,
2x Microsoft
,
3x Microsoft
1x Facebook
,
2x Facebook
,
3x Facebook
1x Amazon
,
2x Amazon
,
3x Amazon
1x Alphabet
,
2x Alphabet
,
3x Alphabet
2x NVIDIA
,
3x NVIDIA
1x Tesla
,
2x Tesla
, 3x
Tesla
Traders can long S&P 500 index using our
3x US 500
,
5x Long US 500
.
Alternatively, they can short one of the “Big 7” stocks using our:
-1x
Apple,
-3x Apple
-1x Microsoft
,
-3x Microsoft
-3x Facebook
-3x Amazon
-1x Alphabet
,
-3x Alphabet
-1x NVIDIA
,
-3x NVIDIA
-1x Tesla
,
-2x Tesla
,
-3x Tesla
Or they can short S&P 500 index using our
-3x US 500