Stock Market Downturn Due to Decreased Leverage Demand

Stocks had a tumultuous day, starting strong and then plunging by midday. The S&P saw a swing from morning gains to afternoon losses, with sellers taking the reins and driving the index down by 20 basis points. The big question now is whether the neckline of the head and shoulder formation will break, potentially leading to a more substantial drop towards the 5,500 mark.

Market breadth showed a significant shift as well. At the open on the NYSE, there were almost 1,300 more stocks advancing than declining. By the end of the day, however, decliners outnumbered advancers by 269.

Nvidia, on the other hand, played a crucial role in cushioning the market’s overall decline. Without Nvidia’s 3% gain contributing four points to the Bloomberg 500 index, the day might have ended with a 50 to 60 basis point loss rather than just 20.

Looking at Nvidia’s performance since late November, it appears to be in a downtrend, facing resistance levels around $139.50 from June highs. A break below $132 could lead to a sharper decline, while a move towards $150 is also possible, depending on market sentiment and momentum.

The options market continues to heavily influence Nvidia’s stock, with nearly 2 million calls traded versus 1 million puts. The volume of calls exceeded the five-day average, driven by short-dated contracts like the January 3rd $140 and $138 calls, which were among the most active trades.

Overall, Nvidia remains a stock to watch with implied volatility around 44%, offering traders opportunities to explore cheaper call options.