Ethereum Plunge Creates Potential Rebound Zone and Upside Opportunity

Ethereum's dramatic price drop positions it at critical technical support levels where history suggests rebounds often occur.

Technical Analysis Perspective

The current ETH correction mirrors previous patterns where oversold conditions preceded significant recoveries. Key Fibonacci retracement levels and volume indicators suggest accumulation opportunities are emerging for savvy traders.

Market Dynamics at Play

While retail investors panic-sell, institutional wallets continue accumulating at these levels. The fundamental narrative around Ethereum's ecosystem development remains intact despite short-term price volatility.

Risk-Reward Calculus

Trading at potential reversal zones doesn't guarantee immediate gains, but the asymmetric risk profile favors long-term positions. Previous cycles show similar corrections preceding major rallies.

Because nothing says 'smart money' like buying when everyone else is terrified and selling when they're euphoric—except maybe actually timing the market consistently, which nobody does.

Selling Broadcom after it surged into Mag Seven territory

The "Magnificent Seven" have become household stocks due to their massive technology businesses, market caps exceeding $1 trillion, and because investors expect them to be the big winners from the artificial intelligence boom. Broadcom was not included in the Magnificent Seven but has recently emerged as a comparable company. Its stock price has increased roughly 91% in the past year and now has a market cap of roughly $1.63 trillion.

Image source: Nvidia.

Broadcom makes custom chips for AI workloads that hyperscalers like OpenAI,, andhave taken a keen interest in. While(NVDA -4.84%) is the main pick-and-shovel play for AI, making graphics processing units that can handle multiple tasks at once, Broadcom focuses on application-specific integrated circuits (ASICs) that make one particular task more efficient. For instance, Meta used the chips it designed with Broadcom specifically for its AI models focused on generating ads and organic content.

Wall Street analysts are still bullish on Broadcom and the custom AI chip business. Mizuho analyst Vijay Rakesh recently reiterated an outperform rating on the stock and issued a price target of $410, implying 21% upside from current levels. Rakesh called Broadcom the "King of AI Custom Silicon" and sees ASIC revenue accelerating and the company drawing broader interest in the AI space.

In the second quarter, Citadel sold roughly 82% of its long position in Broadcom. Several reasons could explain the sale. The company trades at 50 times forward earnings. Broadcom also still has a fairly small list of customers in its custom chip business. While those few customers can potentially generate tens of billions in revenue for the company over time, it could be problematic if AI infrastructure spending dries up. It's also quite possible that Citadel is simply taking gains after a good run.

Piling into the AI king

While Citadel was selling the custom chipmaker, the fund piled into the AI chip king Nvidia. In the second quarter, Citadel more than quadrupled its position in Nvidia and now holds a long position of over 8 million shares.

Now, I will caution investors from following the smart money blindly. Citadel runs a "pod shop," meaning it allocates capital to small teams of portfolio managers, who then have broad autonomy to invest as long as they follow certain guidelines from Citadel. This means Griffin isn't making all of the firm's investment decisions, although he does have broad influence over the firm and likely dictates who the firm hires. Hedge funds also tend to focus on 12-18 month time horizons, so they may be trying to trade a stock instead of thinking long term.

Nvidia has had a volatile year, dealing with the trade war between the U.S. and China, which is a key market where Nvidia has previously done business. Nvidia and CEO Jensen Huang have also had to work closely with the TRUMP administration after the administration told Nvidia that it would require export licenses to sell certain chips in certain countries like China.

Over the last six months, Nvidia's stock has bounced back over 90%. While Nvidia's relationship with the Trump administration and China is still fluid, if geopolitical tensions were to ease and China's market opened, Nvidia could generate billions in additional revenue as soon as its current quarter.

But the big question investors are grappling with has to do with AI demand and spend, and whether or not the industry needs to catch its breath. Nvidia alone has been investing a TON in other AI stocks -- notably many of its customers -- and the company recently announced a $100 billion investment in OpenAI. The bears find this rather odd and suggest that Nvidia is circulating money to prop up a sector, while the bulls say that people are underestimating just how much demand there will be for AI.

Obviously, if you are a believer in AI and the continuation of AI infrastructure spend, the decision to invest in Nvidia is easy. Now trading at over 41 times forward earnings, the stock looks more expensive, especially with a market cap NEAR $4.7 trillion. But it's difficult to say what will unwind the AI thematic trade in the near term. Considering Citadel bought the stock months ago, the fund has done well on the investment.

I do think Nvidia will be relevant for decades to come and that AI is here to stay, but the exact path may be hard to predict, so I WOULD recommend bullish investors use dollar-cost averaging when buying the stock.