Being a contrarian investor sounds easy, but its not.
Probably the most famous representation of contrarian investing is Warren Buffet’s rule to always…
“be fearful when others are greedy and to be greedy only when others are fearful.”
Sage advice but try looking into the abyss of a full-blown bear market and tell me when others are fearful. It’s not easy because you and everyone else continues to rationally buy and sell stocks despite the market acting irrationally.
Investor sentiment is one of the most powerful—and misunderstood—forces in the stock market. It’s not about what investors know. It’s about how they feel. In bull markets, sentiment often swings too far toward greed, fueling speculative excesses. In bear markets, fear dominates, creating selling pressure even in fundamentally sound stocks. What’s critical is recognizing where we are in the sentiment cycle.
In 2024 and now into 2025, we’ve seen sentiment deteriorate as technical trends have broken down across the major indices. The Nasdaq 100 and S&P 500 are showing prolonged bearish patterns, and yet, retail traders continue buying the dip, clinging to optimism that has historically marked the late stages of bull markets. That’s a dangerous mismatch.
True bottoms form not when hope is high—but when it’s gone.
The capitulation phase, marked by disgust, frustration, and apathy, is when the market resets. Until then, positive headlines or earnings beats are unlikely to change the dominant downtrend.
Investor sentiment doesn’t just follow the market—it can shape it. Understanding how sentiment interacts with fundamentals and technicals is key to navigating a bear market and positioning yourself to thrive in the recovery.
This is one of the most confusing things that “contrarian investors” must come to grips with and a common investor mistake.
Assuming a stock price that has lost 10%, 20% or more must mean investor expectations are low. But that’s not always true - especially in a bear market or after a sharp correction. Price alone doesn’t measure sentiment. It measures what investors are willing to pay right now, not what they expect long-term.
In fact, stocks can trade at low prices precisely because expectations are still too high.
If a company misses earnings or cuts guidance and the stock only drops 10%, that doesn’t mean investors have priced in all the bad news. It often means the market is still holding out hope—expecting a quick rebound, a turnaround, or a one-time issue. That hope keeps the stock from falling as far as it should.
It’s not until expectations are fully reset - when analysts lower price targets, media coverage turns negative, and retail investors give up—that price and expectation align. That’s when real value appears.
Ask whether expectations are still too optimistic. Until expectations get crushed, the price might still have room to fall.
So don’t assume a $6 stock is “cheap” or that NVIDIA is a “contrarian buy” at $100. NVIDIA is more dangerous at $100 than it was at $130. Here’s Why.
For the last three weeks shares of NVIDIA have been trying to hold on to one price, $100.
There are a few reasons for that, the most important of which has to do with sentiment. Any round number prices, especially $100, will act as support or resistance for any stock.
The same can be said of $10 and SoundHound AI shares right now.
Investors use round numbers as “check in” prices because they are easy to identify. Once the price is on their radar, they watch and react according to their expectations.
How many limit orders do you think retail investors have placed to buy NVIDIA at $100? I’ll bet it’s the most popular “Good-Til-Cancelled (GTC)” order on Wall Street right now.
This means that every time NVIDIA touches $100 another round of buying kicks in offering another round of support for the stock. The support builds a false narrative with average investors that NVIDIA is “cheap” at $100 which is why the stock keeps bouncing… until it doesn’t.
NVIDIA (NVDA) is still the most popular stock in the market, end sentence. This is also what makes the stock the most dangerous as shares hang above $100.
The current Wall Street Analysts’ recommendations for NVIDIA show 89% of analysts as a buy or strong buy. This is the most highly recommended stock in the Nasdaq 100 by a long shot.
That’s comforting for many investors, to know that they are running with a large crowd of bulls. The true contrarian investor sees something different.
Simply put, the most popular stock in the market also has the most potential selling power. In other words, if more investors are bullish on a stock then there are more investors turning into sellers when something goes wrong.
That something that can go wrong is NVIDIA passing below $100 again.
We saw a similar situation with NVIDIA and the $21 price in 2022.
At the time, NVIDIA was coming off its all-time high of $35. Shares had declined to $21, a price that investors turned into critical support for the stock.
Following the 35% drop in price the stock appeared to have lowered expectations or was “cheap”, but investors continued to talk about how the stock was a great value and was sure to rally back to its highs.
Then came the break. $21 gave way to trigger the real shift in sentiment as the bulls started to run from the stock. The Wall Street analysts that had been reiterating the stock as it held at $21 started to slowly downgrade the stock. Only then did NVIDIA shares become a contrarian buy.
The technical, sentiment and fundamental picture is identical to what we saw in May 2022.
NVIDIA’s 50- and 200-day moving averages have both turned bearish. The last time that this occurred was in May 2022. The same period that we just discussed NVIDIA stock breaking through the $21 price.
The stock is bouncing on its 20-month moving average, which is the line of demarcation between a bull and bear market. The last time that happened was in April 2022. The stock fell below that critical trendline in May 2022 ahead of a 40% decline into the October 2022 lows at $10.77.
Sentiment towards the stock remains optimistic as investors look to the company’s May 28 earnings to provide the boost that shares need to move back to their highs at $150.
Fundamentally We saw a similar situation in May 2022 as investors took comfort in the fact that NVIDIA had provided upside earnings per share and revenue guidance in February 2022. The company hit its May 2022 earnings target for both earnings and revenue but lowered their outlook as capital expenditures were slowing.
The bottom line is that NVIDIA shares are repeating the exact same cycle they saw in 2022, putting the stock at risk for another 20-30% drop from their current price of $105.
First and foremost, investors that are concerned about the downside risks should consider taking profits or cutting losses on NVIDIA stock by selling shares.
Investors can choose to use options to hedge the risks of a deep decline in NVIDIA stock, but there’s something easier.
The NVDS ETF is the Tradr 1.5X Short NVDA Daily ETF, which targets 1.5 times the inverse daily performance of NVIDIA Corporation's stock. This means for every 1% NVIDIA goes down the NVDS goes up roughly 1.5%.
The ETF carries a 1.15% management fee and pays a “dividend”, though this should not be considered a long-term holding in a situation, just a short-term hedge on NVIDIA stock.
The shares are currently priced at 26.50 with a target of $45-$50 over the next 3-6 months.
Frankly, I would love to give an alternative to de-risk the NVIDIA price drop, but the options are just priced too poorly.
Using the November 21, 2025 $100 puts to hedge a potential drop to $80 would only net a 42% profits using theoretically calculated price results. The NVDS shares discussed above would net a higher return based on a similar move.
We’ll revisit NVIDIA and other contrarian-based trades as we move through the market’s summer slough.
