by Danny Riley

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Nvidia’s $600 Billion Loss: What It Means for AI and Markets

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Our View

You know my saying: “These are not our fathers’ markets or charts.” Well, they aren’t, and nor will they ever go back to being so.. Forget the computer age; we now live in a battle of AI. Who’s going to be the biggest? Who’s going to be the best?

Over 15 years ago, maybe longer, the PitBull told me the U.S. was the world leader in technology and always would be. But after yesterday’s action, I’m not so sure about that. For the last two-plus years, it’s been nothing but the Magnificent 7 or the top 10 tech stocks driving the market. My question is this: How could a company like DeepSeek, which only cost $6.5 million, upend almost all of the U.S.’s top tech and AI companies?

Nvidia alone lost over $600 billion in market cap, the largest single-day loss in U.S. stock market history. Despite Nvidia CEO Jensen Huang dismissing the event as a “long-term play,” the fallout caused IonQ and others to crash. In reality, this is an existential threat to AI powerhouses and other major AI players. No matter how you frame it, yesterday saw an AI crash.

Monday’s total market wipeout erased $1 trillion in value. Bonds climbed as investors sought haven assets, sending the 10-year note yield down to 4.529%. Bitcoin sold off, dropping below $100,000 before recovering to close at $101,405. Other casualties included Oracle, down 14%; Super Micro Computer, which makes servers used in generative AI, down 13%; and chipmaker Broadcom, which slumped 17%.

No matter how you see it, DeepSeek has cast a high level of doubt over the oversized investments many companies—like Microsoft, which plans to invest up to $80 billion in AI development—are making in this space. It also sheds light on the aforementioned Magnificent 7, a group of seven dominant companies that accounted for more than half of the S&P 500’s total return last year, according to S&P Dow Jones Indices. These include Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.

The group is simply too concentrated, too loaded up with big names, and backed by mega money. Yesterday’s action raises questions about whether these market leaders have become too dominant, and too vulnerable.

Our Lean

Personally, I can’t deny the profits people have made off the 7 to 10 top stocks. While I wouldn’t compare it directly to the 2000 tech bubble, their oversized market caps made up more than 50% of the S&P’s profit last year—and I can’t see how that’s a good thing. Even if your 401(k) doesn’t hold NVDA, yesterday’s drop likely caused you some pain if you own a fund that tracks it. The impact of such an oversized drop ripples through everywhere.

Yesterday’s move was just too big to shake off in one day. Sure, Jensen Huang can dismiss the drop, but he can’t deny the significant damage caused. His statement that quantum computing won’t be “very useful” for another 15-30 years is total BS.

I can’t rule out a pop today but or buying a lower open but I’m selling the rallies. Damage done.

Summary of Changes:

MiM and Daily Recap

The ES experienced notable swings in premarket trading, with heightened volatility evident. The Globex range extended from 5948.00 at 5:50 AM, a sharp drop of 72.75 points, to a high of 6014.75 at 8:20 AM. Heading into the open, the ES retraced to 5995.25 at 9:25 AM before starting the regular session at 5995.00.

The regular session saw early buying, with the ES climbing to 6048.00 by 10:40 AM. After pulling back to a higher low at 6013.25, the session turned choppy. The ES began a stair-step pattern higher, reaching 6043.25 before retracing to 6014.75 around 2:50 PM. From there, the ES rallied to a session high of 6046.75 into the close.

The ES traded heavy volume throughout the day, with a total of 2.3 million contracts, reflecting robust activity. The cash-to-cash close for the ES showed a decline of 86 points (-0.81%), indicating pressure but also active two-sided trade.

In the end, the ES demonstrated resilience despite the heavy volume and significant swings, closing just off the highs of the session.

The NQ traded 1 million contracts but did not recover as strongly as the ES. The cash-to-cash close for the NQ was down 2.97%, reflecting relative underperformance.

Overall, the market held strong. A weekend news-generated gap showed continued support, highlighting investor confidence.

How to read the MIM

Technical Edge

MrTopStep Levels:

How to read MTS Levels

Fair Values for January 28, 2025:

SP: 30.29
NQ: 119.09
Dow: 178.94

Daily Market Recap 📊

NYSE Breadth: 53% Upside Volume
Nasdaq Breadth: 36% Upside Volume
Total Breadth: 38% Upside Volume
NYSE Advance/Decline: 56% Advances
Nasdaq Advance/Decline: 40% Advances
Total Advance/Decline: 46% Advances
NYSE New Highs/New Lows: 79 / 21
Nasdaq New Highs/New Lows: 91 / 135
NYSE TRIN: 1.42
Nasdaq TRIN: 1.20

Weekly Market 📈

NYSE Breadth: 58% Upside Volume
Nasdaq Breadth: 60% Upside Volume
Total Breadth: 59% Upside Volume
NYSE Advance/Decline: 65% Advances
Nasdaq Advance/Decline: 61% Advances
Total Advance/Decline: 63% Advances
NYSE New Highs/New Lows: 262 / 52
Nasdaq New Highs/New Lows: 369 / 236
NYSE TRIN: 0.96
Nasdaq TRIN: 0.83

Trading Room Summaries

Polaris Trading Group Summary – Tuesday, January 21, 2025

The trading day in the PTG room started with a slight delay as PTGDavid announced he might miss the morning briefing. Charts were shared early, and the tone was set to prepare for a potentially volatile session, with David urging participants to “buckle up.”

Key Market Observations and Trade Notes:

Morning Activity:
- An early two-way cluster was identified at 6020–6035, indicating potential areas of interest for rotations or scalps.
- Some traders, like blibby71, noted a potential PKB (price key breakout) near the 6000–6010 level, contingent on price reclaiming that zone.
Mid-Morning Shift:
- PTGDavid highlighted a Buy Response at the lower edge of the “sandbox,” consistent with his anticipation.
- As the session progressed, bearish momentum gained strength, and David confirmed alignment with the sell-side bias.
Afternoon Trading:
- Midday was described as a “slug fest,” with little activity during lunch. However, David monitored NVDA closely, noting its inability to clear the critical 119–120 zone.
- NVDA’s substantial market cap loss became a topic, reflecting the significant bearish tone of the broader market.
- Attempts at a bullish push around 2 PM were weak, with David quipping that the bulls were “slipping on the soap.”
Closing Remarks:
- David and other participants noted tight rotations between 6015–6030, emphasizing a limited value area (VA) for trading opportunities. The day was best suited for scalping strategies.
- The final half-hour saw a minor “relief bid” to balance positions ahead of the close, but it was generally uneventful.

Lessons and Takeaways:

Adaptability to Market Conditions: The day highlighted the importance of aligning with the market’s prevailing sentiment, with traders shifting to a bearish bias as the session unfolded.
Scalp-Friendly Environment: Tight ranges and limited volatility underscored the need for precise entries and exits, focusing on scalping rather than broader trends.
Key Levels for Tomorrow: David marked 6015 as a potential Line-in-the-Sand (LIS) for the next session, providing a key reference point for future trades.

Positive Notes:

Traders demonstrated excellent communication, sharing observations like potential PKBs and rotation zones.
Despite the limited movement, there was strong focus on technical levels and disciplined trading, ensuring minimal exposure to unfavorable trades.

The session wrapped with expectations of revisiting the tight range tomorrow and keeping an eye on broader market developments.

Discovery Trading Group Room Preview – January 22, 2025

Morning Market Brief:
- AI Sector Selloff: A selloff triggered by Chinese AI startup DeepSeek impacted major tech players, with Nvidia (NVDA) leading the plunge, down 16.9%, erasing $589 billion in market cap. Other chipmakers, including Broadcom (AVGO), Lam Research (LRCX), KLA (KLAC), and Marvell (MRVL), also faced declines.
  - Tech Impact: Heavy AI investors like Microsoft (MSFT) and Alphabet (GOOGL) suffered price drops, with the AI sector under pressure as Q4 profit growth is projected to slow to 22%, the lowest in two years.
  - Market Performance:
    - Nasdaq: -3%
    - S&P 500: -1.5%
    - Dow Jones: +0.65%
    - Notable gainers amidst the selloff included Apple (AAPL) and Meta (META).
  - Expert Commentary: Analysts suggest Monday’s reaction may be overblown. Stacy Rasgon (Bernstein) and Daniel Newman (Futurum) expressed optimism, citing innovation and reduced overhead as potential positives for AI infrastructure.
  - Trade Policy Shifts: Treasury head Scott Bessent hinted at universal tariffs starting at 2.5%, with gradual increases. Trump advocated for higher tariffs, especially targeting automotive imports from Canada and Mexico. The US Dollar Index saw a significant 0.5% rise.
  - Upcoming Corporate Earnings: Key premarket reports include Boeing (BA), General Motors (GM), and Lockheed Martin (LMT), with after-market updates expected from Starbucks (SBUX) and others.
  - Economic Data on Tap: Durable Goods Orders (8:30 AM ET), Housing Price Indices (9:00 AM ET), Consumer Confidence, and Richmond Manufacturing Index (10:00 AM ET) will shape market sentiment.
  - Volatility Outlook: Elevated volatility from Monday’s AI-driven selloff is likely to persist.
  - Technical Levels (ES Futures):
    - Support: 5975/72, 5858/63, 5754/49
    - Resistance: 6177/80, 6387/92
    - Monday’s close near the 50-day MA (6045.50) signals a potential bullish edge for both bulls and bears to work within short and intermediate-term uptrend channels.
- Conclusion: Markets remain volatile with significant earnings reports and economic data expected to influence the day. AI and trade-related developments will stay in focus.

ES -Week to Week

ES held strong after a strong down gap before the open. Today if the market is to hold for higher it needs to keep trading above 6038.70. Higher scores could be set above 6105.25 but just finding firmer ground inside yesterday’s candle would be an accomplishment.

NQ – Week to Week

NQ needs to trade above 21,262 and stay to find its footing. Below that level would signal longer-term weakness with levels on the chart showing possible points of interest.