The Bubble Burst Has Started, Beware Of 'Smoke And Mirrors'

seekingalpha06-26

Nvidia's stock is down 16% in 5 days, and this could be the beginning of the AI bubble burst.However, the broad market indices such as the S&P 500 are still stable.The next stage of the bubble burst ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nThe Bubble Burst Has Started, Beware Of 'Smoke And Mirrors'\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-26 02:02 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4700992-the-bubble-burst-has-started-beware-of-smoke-and-mirrors><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Nvidia's stock is down 16% in 5 days, and this could be the beginning of the AI bubble burst.However, the broad market indices such as the S&P 500 are still stable.The next stage of the bubble burst ...</p>\n\n<a href=\"https://seekingalpha.com/article/4700992-the-bubble-burst-has-started-beware-of-smoke-and-mirrors\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0348723411.USD","symbol_name":"ALLIANZ GLOBAL HI-TECH GROWTH \"A\" (USD) INC","start_time":0,"source_url":"https://seekingalpha.com/article/4700992-the-bubble-burst-has-started-beware-of-smoke-and-mirrors","article_id":"2446820653","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/490025786/image_490025786.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2446820653","pubTimestamp":1719338537,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"If June 20 proves to be the top, it could be related to the speculation in NVDA call options, via the dealer gamma squeeze. June 21 was the option expiration date, and the dealers who were forced to buy NVDA stock to hedge their short NVDA call position were able to offload NVDA stock. Based on the price action, since there weren't any new buyers willing to step in - everybody was possibly all in. That's what tops look like, when there is nobody left to buy, the price starts dropping, and when the traders attempt to take profits, the price collapses. Smoke and mirrors Yet, during the recent selloff of NVDA and related investments, the broad market indices remained calm. The ETF that tracks the S&P 500  has been mostly flat over the last","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU0348723411.USD":"ALLIANZ GLOBAL HI-TECH GROWTH \"A\" (USD) INC","SPY":"标普500ETF","SDS":"两倍做空标普500ETF","AMGN":"安进","SH":"标普500反向ETF","IWN":"罗素2000价值股指数ETF-iShares","LU1023059063.AUD":"BGF WORLD HEALTHSCIENCE \"A2\" (AUDHDG) ACC","IVV":"标普500指数ETF","IWO":"罗素2000成长股指数ETF","OEX":"标普100",".SPX":"S&P 500 Index","UNH":"联合健康","NVDL":"GraniteShares 2x Long NVDA Daily ETF","IE00B7KXQ091.USD":"Janus Henderson Balanced A Inc USD","SRTY":"罗素2000指数三倍做空ETF-ProShares","IE00BMPRXR70.SGD":"Neuberger Berman 5G Connectivity A Acc SGD-H","GOOGL":"谷歌A","UWM":"罗素2000指数ETF两倍做多","VOO":"Vanguard标普500ETF","MCD":"麦当劳","GOOG":"谷歌","TZA":"罗素2000指数三倍做空ETF","AAPL":"苹果","AVGO":"博通","QQQ":"纳指100ETF","TNA":"罗素2000指数三倍做多ETF-Direxion","LU0061474705.USD":"THREADNEEDLE (LUX) GLOBAL DYNAMIC REAL RETURN \"AU\" (USD) ACC","FDN":"First Trust Dow Jones Internet I","RWM":"罗素2000指数反向ETF","SSO":"两倍做多标普500ETF","OEF":"标普100指数ETF-iShares","UPRO":"三倍做多标普500ETF","LU0289960550.SGD":"AB FCP I - GLOBAL EQUITY BLEND PORTFOLIO 'A' (SGD) ACC","IE0003U64NQ7.SGD":"PIMCO BALANCED INCOME AND GROWTH \"M\" (SGDHDG) ACC","LU0316494557.USD":"FRANKLIN GLOBAL FUNDAMENTAL STRATEGIES \"A\" ACC","IE00BFSS8Q28.SGD":"Janus Henderson Balanced A Inc SGD-H","NVDA":"英伟达","SOXL":"三倍做多半导体ETF-Direxion Daily","META":"Meta Platforms","SPXU":"三倍做空标普500ETF","IE000KEQY171.SGD":"PIMCO BALANCED INCOME AND GROWTH \"M\" (SGDHDG) INC","LU0985489474.SGD":"First Eagle Amundi International AHS-C SGD-H","IWM":"罗素2000指数ETF","SMH":"半导体指数ETF-HOLDRs","LU0878866978.SGD":"First Eagle Amundi International AHS-QD SGD-H","DIA":"道琼斯ETF","TWM":"罗素2000指数两倍做空ETF"},"translate_title":"泡沫破裂已经开始，谨防“烟雾和镜子”","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AMGN":1,"AVGO":1,"DIA":1,"MCD":1,"NVDL":1,"QQQ":1,"UNH":1,"SMH":1,"GOOGL":1,"SOXL":1,"IWM":1,"SPY":1,"VOO":0.9,"NVDA":0.9,"FDN":0.9,"SRTY":0.6,"SSO":0.6,"SPXU":0.6,"TNA":0.6,"TWM":0.6,"TZA":0.6,"SH":0.6,"SDS":0.6,"RWM":0.6,"UPRO":0.6,"OEX":0.6,"OEF":0.6,"UWM":0.6,"ESmain":0.6,"MNQmain":0.6,"MRTYmain":0.6,"IVV":0.6,"IWN":0.6,"IWO":0.6,".SPX":0.6,"GOOG":0.3,"META":0.3,"AAPL":0.3},"content_text":"Nvidia's stock is down 16% in 5 days, and this could be the beginning of the AI bubble burst.However, the broad market indices such as the S&P 500 are still stable.The next stage of the bubble burst is likely to be triggered by a systematic event, as the macro environment deteriorates, and the political/geopolitical situation escalates.anankkml The bubble burst Here is the fact, NVIDIA Corporation's stock (NVDA) is down by almost 16% over the last five days. Nvidia is still up by over 138% YTD, and it has led the S&P 500 higher ever since May 2023. It had become the largest company in the world, before the recent selloff. Nvidia is the most direct play on the GenAI theme as the supplier of AI-enabling chips. However, the most recent leg higher since the recently released earnings report in May appears to be mainly due to the retail investor excitement about the 10-1 stock split. Not only did the retail investor heavily bet on NVDA stock, but the retail investor heavily bet on the leveraged ETF that provides the 2X NVDA returns, the GraniteShares 2x Long NVDA Daily ETF (NVDL). That's the clear evidence of the speculative fever that has likely caused a massive bubble that's now bursting. NVDL is down by almost 30% over the last five days. The retail investor also heavily bet on Broadcom Inc. (AVGO), which is also a semiconductor stock under the GenAI theme. Just like Nvidia, Broadcom also announced a 10-1 stock split recently, which similarly attracted heavy retail interest. Broadcom is down by 10% over the last five days, so the selloff in AVGO is also underway. The retail investor also heavily invested in the semiconductors via the VanEck Semiconductor ETF (SMH), and also via the triple leveraged Direxion Daily Semiconductor Bull 3X Shares ETF (SOXL), which is down by 19% over the last five days, while SMH is down by 8% over the same period. It appears that there was heavy retail investor speculation in the leveraged products this year based on non-fundamental factors like stock splits. Thus, the bubble inflated, and given the relative importance of semiconductors and individual names like Nvidia in the broad market indices, the broad market is vulnerable to a bubble burst. What caused the selloff on June 20? If June 20 proves to be the top, it could be related to the speculation in NVDA call options, via the dealer gamma squeeze. June 21 was the option expiration date, and the dealers who were forced to buy NVDA stock to hedge their short NVDA call position were able to offload NVDA stock. Based on the price action, since there weren't any new buyers willing to step in - everybody was possibly all in. That's what tops look like, when there is nobody left to buy, the price starts dropping, and when the traders attempt to take profits, the price collapses. Smoke and mirrors Yet, during the recent selloff of NVDA and related investments, the broad market indices remained calm. The ETF that tracks the S&P 500 (SPY) has been mostly flat over the last five days, rising by 0.43%. But the ETF that tracks the SPDR® Dow Jones Industrial Average ETF Trust (DIA) is up by 1.32% over the last five days. The Dow Jones Industrial Average has been underperforming this year, rising by 4.54% YTD, and yet over the last five days it outperformed. The ETF that tracks the Russell 2000 index of small-cap stocks, iShares Russell 2000 ETF (IWM) is also essentially flat over the last five days, falling by just 0.22%. Even the Invesco QQQ Trust ETF (QQQ), which is heavily weighted by semiconductor stocks, is down by only 2% over the last five days. Thus, the broad market sentiment has not changed much, the selloff in NVDA and the semiconductors has been mostly ignored. Nobody is really talking about the major turning point or a bubble bust. But this is all likely an illusion or the \"smoke and mirrors\". The media is reporting that the retail investor has been betting heavily on NVDA and the semis. But, the institutional investor has also been overweight the AI theme, the macro-caps, and specifically NVDA. The institutional investor now needs to get out and sell. But, obviously, they need buyers, and if everybody tries to sell at the same time, with no buyers, the price crashes, that's the 1987 scenario. Thus, the share distribution process, where institutional investors exit the positions, requires keeping the market sentiment positive and keeping the broad market indices stable. In other words, it requires \"smoke and mirrors\". The Dow Jones Index is perfect for creating an illusion because it's a price-weighted index (unlike the S&P 500 which is a market cap weighted index). This means that relatively smaller companies with higher stock prices can have a major influence on the broad index. UnitedHealth Group Incorporated (UNH) is the biggest Dow stock with an 8% weighting, and it has been down by 7% YTD, but up 2% over the last five days. Amgen Inc. (AMGN) is up by 4% over the last five days, and its weighting is over 5% of the Dow. McDonald's Corporation (MCD) is up by almost 4% over the last five days, but down by 12% YTD, and weights for over 4% of the Dow. These stocks are keeping the Dow up, while NVDA is selling off. But also, within the Mag 7 stocks, the major selloff over the last five days has been limited only to NVDA, while Apple Inc. (AAPL) is down by 2.3% and Meta Platforms, Inc. (META) is down by 0.8%, and the rest of them are up, led by Alphabet Inc. (GOOG), (GOOGL) which is up by 2.2%. Implications The GenAI bubble burst is likely underway with the major selloff in Nvidia and Broadcom. In this first stage of the bust, the broad market appears to be stable, to keep investor sentiment positive and allow the institutional investor to exit the long positions. The next stage of the bust will likely have to be triggered by a systematic event, such as an imminent recession, a credit event, or a political/geopolitical event. In this situation, the correlation between the stocks will increase, and it will be difficult to mask the targeted selling. The weekly claims for unemployment could be a trigger (every Thursday), whereby a rising trend in claims could signal an imminent recession. The French elections on Sunday could trigger a sovereign credit risk crisis and tightening of financial conditions globally. The spike in the price of oil due to geopolitical escalation could be another trigger. The S&P 500 is heavily concentrated in the mega-caps, with Nvidia's weighting alone being around 7%. At the moment, the NVDA selloff has had a limited effect on the S&P 500, but this is likely to change with a slowing economy and escalating geopolitics. Thus, the S&P 500 (SP500) is vulnerable and could experience a deep drawdown.  On the other hand, could NVDA reverse once again, with the price rising to new highs? Possibly - it will depend on the next earnings report. Nvidia would have to have another major EPS beat and a significant increase in the guidance once again. Still, the deteriorating macro environment is catching up, and all speculative trades are vulnerable.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":1,"commentSize":0,"repostSize":0,"favoriteSize":2,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.26.3","shortVersion":"4.26.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2446820653"}