The S&P 500 and Nasdaq are both down today, mainly because Nvidia’s shares have dropped. This decline follows news that Alibaba has developed an AI chip aimed at taking Nvidia’s place in China, leading to a rise in Alibaba’s stock. Chinese firms are focusing on building their own AI chips, especially since the U.S. has imposed restrictions in the past. Even though Nvidia’s stocks are falling, the overall stock market will likely react more to upcoming U.S. labor market data and decisions from the Federal Reserve.

Immediate Opportunities and Trades

In the short-term, this situation may cause a pullback, especially with month-end approaching and potential data risks. Nvidia’s weakness presents immediate trading opportunities. We plan to buy put options on both Nvidia and the semiconductor ETF, SMH, to protect against further losses. The semiconductor sector has had a strong run in 2025, with the SOX index gaining over 45% this year, making it vulnerable to a quick downturn from news like this. On the other hand, the Alibaba announcement opens up a promising pairs trade. We are considering investing in Chinese tech, possibly through Alibaba shares or the KWEB ETF, while also shorting U.S. semiconductor stocks. The Hang Seng Tech Index has already risen nearly 10% this month, indicating that money may be flowing back into these undervalued stocks. This fluctuation in tech stocks is creating wider market concerns ahead of a long weekend. The CBOE Volatility Index (VIX), known as the market’s “fear gauge,” has jumped from a low of 14 to over 17 in just two days. With implied volatility still low compared to historical levels, this is a good time to buy protective puts on the S&P 500 (SPY) or Nasdaq-100 (QQQ).

The Bigger Economic Picture

The key issue is next week’s U.S. labor market report and its influence on the Federal Reserve. The current expectation is a non-farm payrolls number of around 180,000, and any significant change could impact markets. According to the CME FedWatch Tool, there is a 70% chance that the Fed will keep rates steady at its September meeting, but a very strong jobs report could quickly alter that view. We’ve seen similar patterns before. In late 2021, when tech stocks showed weakness, it led to a broader market decline in 2022. This history teaches us that faltering market leaders can signal trouble ahead for the entire market. For the upcoming weeks, we will use options to manage our risk and will hold off on making significant new long positions until we see how the employment data turns out. Create your live VT Markets account and start trading now.

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