The Nasdaq Plummets As Market Leader Nvidia Drops 10%

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Stock market volatility has been increasing.

The stock market has now fallen for another week, and that decline sped up a bit as shares of Nvidia's (NVDA) stock fell 10% on Friday. Remember, last week, it was JPMorgan (JPM) that posted a tear drop decline after it reported earnings. Now, Netflix (NFLX) did the same thing as well after it said that it was going to stop reporting the number of paying subscribers it has on its platform.

Take a look at its chart.

And here is the chart for Nvidia.

Do you remember how everyone was talking about the “Magnificent Seven” stocks as we came into this year, and how they were described as the seven big-cap tech stocks that you had to buy because their market caps all dominated the S&P 500 and the Nasdaq? Well, now many of those have rolled over. Shares of Tesla (TSLA) and Apple (AAPL) have been trading down all year, but now the Netflix chart appears to be broken, too.

When market leaders break down in a bull market, it is a big warning sign. There is a saying that when the stock market generals get shot, then watch out.

Also, aren’t stocks supposed to see excitement during earnings season? Last week’s decline in these stocks instead helped to create the biggest weekly market cap market loss in stock market history. That’s a testament to how far these stocks went up and how big their market caps became.

Here is a chart of the Nasdaq.

The Nasdaq isn’t really that far from its 150- and 200-day moving averages now. Is this a mere market correction, or the workings of a major top?

Last year, as you can see, the Nasdaq fell to its 200-day moving average. At that point, the number of stocks on the NYSE above their 200-day moving averages fell below 30%. That number is now at 60%.

However, stage three topping phases typically come with an increase in market volatility and a flattening out of those long-term moving averages. That very easily could be what is starting now.

They also often come with a faltering in the stock market leaders, as well as a rally back up to either minor new highs or one that fails. That rally, though, comes with very weak market breadth and a deterioration of various internal indicators for the market.

That is the key tip off that the bull market is really over, so we’ll watch to see how it all unfolds over the next few months.

Meanwhile, the actual price volatility for gold and silver is shrinking. Remember, the week before last brought with it a “key reversal” day for gold, which made it look like a correction could come in the precious metals markets. In fact, many bullish gold enthusiasts were worried about a drop down to $2200 on gold.

I was thinking it could go sideways in a 100-point range, but it barely fell at all and has just been sitting at around $2400.

When you see a market breakout and have a big run before trading with really low volatility, you are seeing a very powerful trend with a lot of underlying buying going on. With gold, that buying is not happening in the United States, where small investors have zero interest in precious metals, but it’s going on all over the world.

Gold actually made a new weekly closing all-time high on Friday, and silver finished the week at a new 52-week high as well. The move in copper, and the BCIM ETF, which I own a position in, has also yet to stop.

Inflation is not going away when copper prices go up like this. Gold, silver, and commodities are the place to buy now. The market action of the past two months has been telling us that.

What you may want to do is avoid in investing in sectors or ETFs that are falling worse than the market averages have and are already trading below their 200-day moving averages, because they are likely to lead the market to the downside when the next bear market does actually come.

That’s the case of Cathie Wood’s ARKK ETF.

ARKK is sinking, but now many are jumping ship, too.

Last week, Tesla announced it is laying off 10% of its global work force, and several of its top executives, including its top engineer, resigned. He had been with the company for 18 years.

Tesla stock actually lagged the S&P 500 after the stock market turned back up last October. It lagged on the market rally, and lagging action is often a warning for future price drops. And it happened in Tesla's stock in the last two months of the year, and it has been one of the worst stocks anyone can own this year.

Be wary of any other stocks, sectors, and ETFs lagging the market so far this year.

More By This Author:

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