Investors Are Watching Key Technical Level After OpenAI's Faulty 'Trial Balloon'
OpenAI is in damage control mode as volatility returns. Here's the catalyst to focus on.
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This week, sellers took aim at the heart of this rally — AI-focused chipmakers, software providers, and related names.
After an amazing run for this sector, there was bound to be profit taking. In this case, should investors be concerned?
A Little Perspective
To put things in perspective, the S&P 500 closed at an all-time high of 6890 just last week, on October 28 (point A). Since then, the large-cap index has declined by just 2.5%.
Despite this week’s action, the S&P 500 is still in a bullish trend. The index remains above its 50-day moving average (blue). The S&P 500 has remained above its 50-day MA since May 1.
One Reason for Concern
However, we may be seeing the first sign of trouble. A trend line that has been intact since April (black dotted line) has now been violated (point B).
What would really cause concern would be a lower low. In order for that to happen, the S&P 500 would have to close below 6550, the October 10 low (point C). If the S&P 500 falls below 6550, more sellers could be drawn into the market.
What would be the catalyst for such an event? As we say on Thursday, any suggestion that AI-focused companies will struggle to earn a profit.
OpenAI Spooks the Market
An item that spooked investors this week was a statement attributed to OpenAI CFO Janet Friar, at a Wall Street Journal business conference.
Referring to potential funding for AI data centers, Friar was quoted as saying, “This is where we’re looking for an ecosystem of banks, private equity, maybe even government.”
The mere suggestion of government backing for AI projects made some investors question the feasibility of the entire sector. Was OpenAI asking the government for a pre-bailout?
President Trump’s AI czar, David Sacks, responded forcefully on social media platform X. “There will be no federal bailout for AI,” posted Sacks. “The U.S. has at least 5 major frontier model companies. If one fails, others will take its place.”
OpenAI CEO Sam Altman, also on X, provided damage control. “We do not have or want government guarantees for OpenAI data centers.”
Was It a Trial Balloon?
Altman's response was necessary, but why was the concept of government involvement raised in the first place?
This entire episode seems like OpenAI was floating a trial balloon, to see what kind of reaction it would receive. The results were abysmal.
In a nutshell:
OpenAI: It sure would be cool we received government backing!
Government: We’re not giving you any money
Open AI: We didn’t want your money anyway!
Whether it is true or not, Altman had to deny any desire for government aid. The market’s visceral reaction to even a hint of unprofitability spoke volumes. Similar suggestions by any AI-related companies could trigger a similar negative market reaction.
At the time of publication, Ponsi had no positions in any securities mentioned.
