Fear Vs. FANGs

“It would be wonderful if we could avoid the common setbacks with timely exits.”

– Peter Lynch

Thesis:

So much has changed in the past two days. Today, Goldman has raised doubt on the economic “Goldilocks” scenario. Losses have now created anger in investors over minor downgrades. Money flows have switched from tech (QQQ) to Retail (XRT). The biggest shift seems to be the bullish psychology. Analysis of the current situation.

Nvidia:

The most interesting stock of the recent tech selloff was Nvidia (NVDA). 

The stock market’s hottest stock, Nvidia, gets its most bullish Wall Street forecast yet

CNBC had a bullish piece including the potential of a $300 price target. This for a stock that has been a huge winner already. 

That helped send the shares much higher, but reversed after Citron released a bearish view.  And we had this incredible reversal. 

Investors on margin are now experiencing some real fear.

NVDA data by YCharts

Margin Debt:

Reversals are important because margin debt has hit new record highs lately.  Investors in names like NVDA, Tesla (TSLA ), (GOOGL), Amazon (AMZN),  and Netflix (NFLX), who are on margin, are experiencing real losses for the first time in a long while.  This can create selling pressure that feeds on itself.

(via Advisor Perspective)

Psychology:

The psychology of margin debt is very important.  Many times these are investors who have been successful and making money. They conclude that the best way to make more money is to borrow and purchase more shares. However, the shares they are purchasing in stocks like NVDA, have already appreciated by a huge amount. So, a correction becomes much more painful. Also, because they are on margin, they have less capital to buy pullbacks. 

One of the pillars of the economic backdrop could be ending.

End of Goldilocks: