Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Electric vehicle bubble may have burst

It was another session of turmoil in the overnight US session, with all the major US stock indices recording losses. The worst performers are heavily-weighted towards big tech stocks; the S&P 500 shed -1.31% to 3,819 but it still managed to hold above the 50-day moving average at 3,817.

The Nasdaq 100 tumbled by -2.88% to 12,683, breaking below its 50-day moving average and last Friday's low of 12,925. In addition, the Nasdaq has shed an accumulated loss of -8.6% from its 16 February all-time high of 13,878. The cyclical and small caps Dow Jones and Russell 2000 fared better, with losses at -0.39% and 1.06% respectively.

The main culprit was the rising long-dated US 10-year treasury yield, where it rallied to a high of 1.50% before closing at 1.47%, a six basis points increase reinforced by the risk of a heightened inflationary environment. The US ISM non-manufacturing index for February has shown that the prices index rose to 71.8% from 64.2% in January, which indicates higher input costs for service organisations in line with similar higher input costs for manufacturers as reported on Monday.

On the flip side, as seen from the performances of the 11 S&P sectors, the cyclicals/value theme play has managed to provide some form of cushion for the ongoing rout, where energy and financials recorded decent gains of +1.43% and +0.75% respectively.

The performances of leading electric vehicle (EV) stocks, part of the disruptive innovation theme play that produced an astonishing return of between 700% to 1,000% in 2020, have fallen back significantly. Since its current all-time of $900.40 printed on 25 January, Tesla has plummeted by -27.6% to record a close of 653.20 yesterday, clear bear market territory.

Similar observations can be seen in Nio  (-38.6%) and Xpeng (-59.7%). So, after an overstretched valuation from several fundamental matrices in these EV stocks, their current respective technical analysis charts have indicated a potential bubble burst in terms of price actions, which can trigger a negative feedback loop into other euphoric disruptive innovation sectors.

Chart of the day – Tesla

Tesla has entered bear market territory

Source: CMC Markets


Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.