Tech Selloff Deepens: Experts Warn of a "Watershed Moment" for NVIDIA, as Market Loses Ground
New York, NY – The tech-driven rally that propelled the market higher earlier this year appears to be faltering, with a sharp sell-off gripping Wall Street and raising concerns about the future of the bull run. The S&P 500 has lost nearly 10% since its July 16th peak, marking the longest sustained downturn in over 15 years.
Carter Worth, Founder and CEO of Worth Charting, a leading market analysis firm, expressed his concerns about the ongoing correction. "This selloff is hitting the market hard, and it’s not just a regular downtick," said Worth. "It’s coming after an extended period of uncorrected gains, which makes me believe this correction will be longer and deeper than typical."
The tech sector, which has been the driving force behind the recent bull market, has borne the brunt of the selling pressure. "The Magnificent Seven" (Apple, Microsoft, Amazon, Alphabet, Tesla, Nvidia, and Meta) have underperformed the broader market, raising concerns about their ability to maintain their dominance. Worth emphasized the significance of recent volume drops and gaps in these tech giants, signaling potential further declines.
"The distribution seen in these stocks, with heavy volume drops and gaps, is a warning sign," Worth said. "It points to aggressive selling, making it unlikely they can recover quickly. "
One stock that has become a focal point of market watchers is NVIDIA, the chip giant that has powered the artificial intelligence boom. While the fundamentals of the AI sector remain strong, with large tech companies increasing their capex on AI initiatives, there is increasing concern about the stock’s technical performance.
Worth pointed to June 20th as a potential turning point for NVIDIA, when the stock experienced a significant reversal, hitting a new high before closing on the lows with heavy volume. "That’s a key reversal day," he explained. "It indicates an exhaustion of buyers and potential for further declines. "
The market has been down significantly since that day, with the Semiconductor Index (SOX) losing nearly 25% and NVIDIA lagging behind. "While positive news from NVIDIA could encourage the Bulls," Worth cautioned, "we are still so far down that it would take a lot to recoup those losses. My hunch is that the highs are in for the year."
Despite the bleak outlook, Worth identified a potential bright spot in the market – ExxonMobil. "Exxon is a defensive play in a challenging environment," he said, praising its relative outperformance compared to other energy giants. "It’s also been in a two-year range and hasn’t made a new high, making it an attractive buy for both offensive and defensive investors."
As the market navigates this volatile period, the potential for further declines remains a concern. The tech-heavy S&P 500 faces headwinds, with its performance heavily reliant on the performance of the "Magnificent Seven," which are currently under pressure. While NVIDIA’s fundamentals remain strong, the technical signals are raising eyebrows, potentially marking a watershed moment for the stock. Investors will be closely watching for further developments and hints of a potential market rebound.
A Volatile Week on Wall Street: Is the Rally Over?
The stock market experienced a tumultuous week, marked by a significant sell-off that has many investors wondering if the recent rally is over. After reaching its highest point on July 16th, the market has been declining steadily for 14 sessions, with the S&P 500 down 9.7% as of Monday’s low. This decline has erased almost all of the year-to-date gains, as the average stock is only up 4% so far in 2023. While this sell-off is within the historical range of corrections, experts like Carter Worth, founder and CEO of Worth Charting, believe we may be in for a longer and more severe downturn than usual given the recent market conditions.
Key Takeaways:
- A correction is underway, with the S&P 500 down 9.7% in 14 sessions, falling in the middle of the historical range of 5% or more sell-offs.
- The recent market downturn could be longer and deeper than normal, given the prior extended period without any significant market moves and the rapid, uncorrected rise before the current selloff.
- Mega-cap tech stocks remain under pressure, potentially contributing to the market’s weakness.
- Small-cap stocks, which were expected to benefit from a rotation away from mega-caps, have also experienced significant declines, indicating broader market weakness.
- Earnings and other news have added to the pressure on mega-cap tech stocks, causing sharp drops in share prices, and making it harder for them to recover.
- Nvidia, a major player in the AI space, had a key reversal day on June 20th, potentially marking a turning point for the stock and the broader market.
- Exxon is a potential bright spot, offering a defensive play with strong performance relative to other energy stocks and the broader market.
Mega-Cap Tech Stocks Under Fire: Is the AI Hype Fading?
The recent sell-off has been particularly hard on mega-cap technology stocks, with names like Microsoft, Amazon, and Nvidia experiencing significant declines. While recent earnings reports have shown strong growth and reaffirmed investments in artificial intelligence (AI), the tech-heavy NASDAQ has outperformed the S&P 500. This underperformance has fueled concerns about the sustainability of the AI-driven rally.
One notable development is the sharp decline in Nvidia, which has seen a 25% drop in its stock price. This comes after the stock hit a new high on June 20th only to close on the lows of the day on heavy volume. This was a classic key reversal day, signifying a change in sentiment from bullish to bearish.
Carter Worth, a renowned technical analyst, believes that this key reversal day has significant implications for Nvidia and the broader market. He notes that key reversals often occur when there’s a crescendo of buying or selling, leaving no one left to sustain the trend. The subsequent sell-off can be swift and significant.
Is the Rotation Out of Tech Happening?
Experts had predicted that money would flow from mega-cap tech stocks into smaller cap stocks and value names, a process known as market rotation. However, this has not materialized. Smaller cap stocks, as measured by the Russell 2000 (IWM), have also experienced significant declines, mirroring the drop in the broader market.
This lack of rotation suggests a broader market weakness, challenging the idea that investors are simply shifting their money from growth to value. Instead, it seems that investors are becoming increasingly risk-averse, pulling back from both growth and value stocks.
A Silver Lining: Is Exxon the Answer?
While the market outlook remains uncertain, Carter Worth highlights Exxon as a potential bright spot. He believes the stock is well-positioned, offering a combination of offensive and defensive characteristics.
Exxon has outperformed other energy companies, both integrated and drillers, and its performance has been stronger than the overall market. The stock has also been trading in a two-year range, without making new highs, potentially suggesting that it is relatively insulated from broader market swings.
Exxon’s strong performance, its relative defensiveness, and its stable range-bound trading make it a compelling choice for investors seeking to navigate the current market volatility.
The Road Ahead: What’s Next for the Market?
While the market has experienced a significant pullback, the long-term outlook remains uncertain. The current sell-off, despite its severity, is not unprecedented. Historically, such corrections have occurred and often been followed by periods of market recovery.
However, the unique confluence of factors driving this downturn, including the rapid advance preceding the sell-off, the lack of rotation, and the continued weakness of mega-cap tech stocks, suggests that this current correction may be longer and more severe than usual.
Investors need to carefully monitor market developments, pay close attention to technical signals, and consider their own risk tolerance as they navigate this uncertain landscape. It’s essential to remember that market volatility is a normal part of the investment cycle. While short-term market fluctuations can be unsettling, it’s crucial to maintain a long-term perspective, stay focused on your investment goals, and adjust your portfolio as needed.
