Stock Market Correction Begins: High Flyers Begin To Collapse, NVDA Looks To Confirm Breakdown

Key Concepts

• Market Correction: A decline in stock prices of 5-10% or more.
• Inside Bar Pattern: A candlestick pattern where the current day's trading range is entirely within the previous day's range, often indicating a continuation of the prior trend or a potential reversal.
• Bearish Candle: A red candle on a chart, indicating that the price closed lower than it opened.
• Trend Line: A line drawn on a chart connecting a series of price points, used to identify trends.
• Breakdown: A situation where a stock or index price falls below a significant support level.
• High-Risk Stocks (High Beta Plays): Stocks that tend to be more volatile than the overall market, often experiencing larger gains and losses.
• Insider Selling: When company executives and directors sell their own company's stock, often seen as a bearish signal.
• "Buy the Dip" Mentality: A strategy of purchasing assets when their prices fall, assuming they will rebound.
• Market Psychology: The collective sentiment and emotional state of investors, which can significantly influence market movements.

Market Correction Underway: Technical Analysis and Evidence

Gareth Soloway, Chief Market Strategist at Verified Investing.com, presents a technical analysis suggesting that the stock market has already begun a correction, anticipating a 5-10% decline over the next few weeks to a month. He highlights several key charts and market indicators as evidence.

S&P 500 and NASDAQ 100 (QQQ)

• S&P 500: The S&P 500 has broken below a significant trend line and has been unable to reclaim it. Yesterday's attempt to move above the trend line failed, with the market closing below it. Today's sell-off, though only 0.5%, formed an "inside bar pattern." Soloway explains that when price action stays within the range of a previous large candle, it takes on the characteristics of that candle's color. In this case, the inside bar within a red (bearish) candle is a bearish signal. The inability to break back above this level is a concern for institutional traders.
• QQQ (NASDAQ 100): Similar to the S&P 500, the QQQ has broken below its long-term trend line and is exhibiting inside bar patterns, failing to break back above this zone. This is also viewed as a bearish indicator.

Semiconductor ETF (SMH) and Nvidia

• SMH (Semiconductor ETF): Soloway points to the SMH, noting a trend line dating back to the COVID lows. After respecting this trend line during the 2022 bear market, the SMH has now hit this level and experienced significant pullbacks. He projects a potential draw-down of around 30% based on historical patterns, which could bring the SMH down to approximately $250, a level characterized by significant sideways chop.
• Nvidia: As the largest market cap company, Nvidia's chart is crucial. Soloway indicates that if Nvidia closes below $179.75, it will confirm a breakdown. He identifies a larger wedge pattern with the upper trend line connecting highs from 2021 through 2024. Nvidia has tagged this resistance and shown inside bar action. A close below $179.75 would confirm a breakdown, adding to the theme of potential bearish confirmations.

Broader Market Breakdown and High-Risk Assets

• Bitcoin: Bitcoin has already experienced a significant breakdown, falling from $126,000 to approximately $108,000.
• Gold and Silver: These assets, which were making new all-time highs, have also broken down.
• "Last Bastion of Support": Soloway argues that the S&P 500 and NASDAQ 100 are the remaining major indices that have not yet confirmed a breakdown. However, he believes they are starting to crack.

Evidence in High-Risk Stocks

Soloway emphasizes looking "under the covers" to observe corrections in the highest-risk stocks, which often lead broader market downturns.

• Olo (OKLO): This "nuclear play" has seen a massive sell-off, experiencing an almost 40% draw-down in a single week. Despite potential support levels, this significant correction in a previously hot stock is a strong bearish signal.
• Robinhood: This popular stock has dropped 7% today and is down over 20% from its highs. Soloway had previously predicted this reversal based on a bearish engulfing candle at the high end of a parallel channel. Near-term support is identified around $117-$118, the lower trend line of this parallel channel, which dates back to April lows following tariff announcements.
• Regetti Computing: This stock, which reached nearly $60, has already corrected 37%.

The Snowball Effect and Market Psychology

Soloway explains that corrections typically start with the highest-risk, most extended stocks that have moved significantly above their fundamentals. These stocks, having risen hundreds of percent in months, are the first to be "derisked." This selling then "spreads like a wildfire" into broader market indices like the S&P 500 and other large-cap names, but over a longer timeframe.

He warns against a pervasive "buy the dip" mentality, especially when greed is high. Soloway cites anecdotal evidence of extreme bullishness, such as lines around the block to buy gold in Australia, as a sign of a market top. He recalls the Wall Street adage that when ordinary individuals (like bagel or bread makers) are giving stock tips, it signals a top.

The market cycle, according to Soloway, involves institutions entering first, followed by traders and hedge funds, and finally retail investors. When retail is overwhelmingly bullish, there are few buyers left, and institutions begin to unload their positions.

Insider Selling as a Warning Sign

A significant indicator Soloway highlights is the "massive" and unprecedented level of insider selling over the past few months. CEOs, CFOs, CTOs, and COOs are reportedly dumping their company stock at an alarming rate. Soloway argues that this is a clear signal that insiders believe their companies are overvalued. This contrasts sharply with the retail narrative of continued bullishness and buying the dip.

Conclusion and Personal Experience

Soloway concludes that the market correction is already in play, evidenced by the breakdowns in Bitcoin, gold, silver, and the significant sell-offs in high-beta stocks. He anticipates this will spread to larger indices, leading to the projected 5-10% correction in the S&P 500. He shares his personal experience of learning hard lessons in trading and aims to pass on his hard-earned knowledge to help others avoid similar pitfalls. He has been observing "breadcrumbs" for the past month, signaling that something significant was coming in the market.