Every kid in the mid to late1980s wanted a pair of Air Jordans. To the average 10-year-old boy, it was obvious. You only needed three things to dunk: A ball, parents willing to throw away about $100, and a pair of Air Jordans. Suffice it to say the shoes never helped me dunk, but like most kids, I was sold on the possibility.
Fast forward 35 or 36 years and we're faced with a similar situation. No, I'm not talking about Air Jordans, although my son is convinced the new Jordans are a must-have. I'm talking about investors following folks such as Tom Brady, Stephen Curry, Shaquille O'Neal and David Ortiz into FTX because they, the individual investor, believed someone such as Shaq would never invest in or endorse something overly risky.
Celebrity spokespeople aren't the only folks suffering. Some of the best-known investment firms also got involved. Firms such as BlackRock (BLK) , Tiger Global Management and SoftBank Group all appear to be bag holders in the FTX trail of tears.
Setting aside the obvious, which is that you should never follow someone into an investment without doing your own due diligence, this is another wake-up call for investors that anything can go from hero to zero in the blink of an eye. Unfortunately, the FTX debacle will likely impact countless investors and companies in the coming weeks and months. Still, given most crypto assets' unstructured and unregulated nature, this event may be the tipping point that gets the Securities and Exchange Commission to jump into action.
It's difficult to say what the fallout from FTX will be, but if Wednesday's trading is any indication, Robinhood Markets (HOOD) and Coinbase Global (COIN) will face more pain in the days ahead. A few DeFi (decentralized finance) companies that trade on the OTC Bulletin Board market will also likely come under pressure. Still, the bottom line is everything connected to crypto, from Robinhood and MicroStrategy (MSTR) to Coinbase and the many public bitcoin mining companies, are in for a rough time.
Away from the FTX debacle, we saw the ARK Innovation ETF (ARKK) suffer its first significant breakdown in several months. After basing between the mid-$30s and mid-$40s for five months, crypto and earnings-related weakness in shares of Roblox (RBLX) , HOOD, COIN and Unity Software (U) brought in the sellers and sent the Cathie Wood believers back into hiding. There's nothing to like about ARKK's chart, so unless you are short or convinced technology is going to bottom this week, I would avoid ARKK altogether.
One last thing to keep your eye on is the U.S. dollar, or the Invesco DB U.S. Dollar Index Bullish Fund (UUP) . While UUP was strong on Wednesday, a close under $29.50 should be enough to shake the dollar bulls and trigger some selling toward $29. The UUP has yet to come close to testing its 200-day simple moving average (SMA) since it did a drive-by in early August and late September 2021. I wouldn't rule out a break of $29.50 sending the UUP down toward its 200-day SMA near $28.
