"Buyers Are Out of Ammo"

What is happening...?

Here are a couple of short/medium term catalysts to explain the weakness (outside the most important one - the MoMo carnage - dealt with in previous email).

1. Rotation rampage......Several days of Big Tech underperformance, as investors expanded their exposures, adding more pro-cyclical exposure and lean into small-cap stocks, instead of concentrating positions in growth and momentum names

2. One weak earnings datapoint .....ASML's weaker than expected 3Q results

3. Show me the AI money.....Increasing focus on AI, tech earnings, and whether there is too much optimism already priced into the stocks

4. Trading a lowered bar ahead of next week......Consensus expects all five of the mega-cap AI-related tech stocks will report a slowdown in sales growth and four will also have a contraction in net margins

5. China....News reports that US is considering increased restrictions to limit China's access to American technology may also be contributing to Tech weakness.

SOX: Risk happens fast at these valuations

SOX plunged close to 7% in semiconductor sector's worst selloff since March 2020 on the prospect of increased export restrictions on advanced semiconductor technology, and by Donald Trump's latest comments on Taiwan. Taiwan "did take about 100% of our chip business" and "should pay us for defense," Trump said in a Bloomberg Businessweek interview.

Source: Tavi Costa

Ugly in consumer too

FIVE -25% on a negative pre-announcement which was worse than already low expectations. In addition, substantial weakness in a number of names, including ANF -8%, WSM -8%, DKS -5%. Continue to see investors view the group cautiously due to a range of headwinds (tariffs, freight, corporate tone). After-hours LESL -18%.

If you are looking for more "tactical" reasons to be bearish...

Not a lot of cash on hand

Bears consistently point to the fact that Mutual Fund cash balances have dropped to record lows...this is true when measuring cash as a percent of total assets (currently 1.5%).

Source: Goldman

High yield credit was not buying it

High yield credit was not confirming the rally in stocks.

Source: BofA

Cracks in credit have been ominous for stocks

The last time CCC/B diverged, it was the dot-com warning.

Source: BofA

Near max long

USA CTA positioning is near the max exposure level and highest since 2021.

Source: Scott Rubner