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“You can’t have a 5% down day and close on the lows and then think the lows are in,” said Mark Newton, head of technical strategy at Fundstrat Global Advisors.
“I think it’s going to be a great buying opportunity. But that’s not a reason to think that markets have officially bottomed,” he said.
The market excesses monitored by these measures are not new. For months, the hallmarks of the market have included stretched momentum readings, persistent bullish options bets on individual equities, and heavy investor crowding within the AI sector.
Some of these trends began to reverse in early October, as the multi-year rally in AI stocks faltered due to concerns regarding CoreWeave, an Nvidia-backed AI infrastructure firm, after third-quarter results from major cloud providers—the hyperscalers responsible for building data centers—hinted at slowing capital expenditure growth and project delays.
The most recent catalyst was the US midterm elections. The strong performance by Democrats reignited fears of an economic slowdown and weighed heavily on AI stocks. Prices have stabilized somewhat in recent sessions, partially recovering from the post-election decline.
Prior to this latest downturn, some investors had expressed unease regarding the market’s dependence on AI and tech names. Technology and mega-cap growth stocks have driven the bull market for a long time, and high investor exposure to these companies has been a consistent theme for months. Some observers suggest that current positioning might indicate the conditions are right for stabilization.
According to data from Deutsche Bank, investors have reduced their exposure to these stocks since late September while shifting toward other sectors. The selloff observed last week pushed tech positioning below the levels seen during the “Liberation Day” lows of April 2025.
“We see the latest selloff being driven by a forced positioning unwind,” Deutsche Bank strategist Parag Thatte said.
