Nasdaq Bearish Engulfing Candle Meets the SpaceX IPO
The Nasdaq 100 index just closed the week with a bearish engulfing candle. The index – which is a proxy for US tech stocks – is down nearly 6% from its June 3 high of 30,762.20 points. And the timing is interesting: Elon Musk’s SpaceX will list on the US stock market next week. It will be the biggest initial public offering (IPO) of shares in market history.
What the bearish engulfing candle is telling us
A bearish engulfing candle is a two-candle “reversal” pattern – and we just saw a textbook one for the Nasdaq. Last week, the Nasdaq went up and closed in the green. This week, the Nasdaq rallied at first – making a new high. But by the end of the week (Friday’s market close), it closed below the low of last week. The initial rally got slapped back down – and then some.
The Nasdaq rallied 34.68% off its 30 March low – that’s extreme for just nine weeks. And now it’s back below the nice round number of 30,000. It doesn’t mean the Nasdaq has “topped”, but it could be an early warning sign.
Is the SpaceX IPO sucking money out of the Nasdaq?
SpaceX has been a private company for about 24 years. That means its shares aren’t on the stock market, so you can’t buy them. Next week, it “goes public” – its shares start trading on the Nasdaq, where anyone can buy them. That’s the IPO, where new investors are buying about $75 billion worth of SpaceX shares – though that’s only about 4% of the company.
It’s the largest IPO ever. The old record was Saudi Aramco in 2019, at around $29 billion. SpaceX is nearly triple that.
Now, investors don’t just have $75 billion of spare cash lying around. So to buy the new shares, they sell stocks they already own to free up the money. The easy ones to sell are the winners – the big tech names that have run up the most on the Nasdaq.
But the danger isn’t the amount of money that investors need to free up – the Nasdaq is worth almost $40 trillion. It’s what happens when investors are over-leveraged in an overheated market. FINRA Investor Margin Debt just hit a record $1.3 trillion – that means investors are borrowing more money than ever to buy stocks.
When leveraged investors are driving too fast, a small speed bump can turn them into forced sellers. OpenAI and Anthropic have IPOs later this year. It could be a bumpy road ahead.
As usual, none of this is investment advice. To learn more about candlestick patterns, check out our Candlestick Charts Explained guide.
