Is the AI Stock Bottom Close? What the Market's Internals Say
Retail sentiment is gloomy, yet institutional positioning remains heavy. Breadth, semiconductors and options pricing have to be read together.
AI Correction: When Does the Rebound Start? Part 3 of 4
The index fell, but not every stock did
On Oct. 22, the S&P 500 fell 1.21%, according to Saxo Bank data. An index holding the same constituents at equal weight rose 0.77%. The gap between the two is 1.98 percentage points in a single day.
That suggests weakness in the giant AI names dragged down the cap-weighted index while buyers remained in other sectors. It looks more like rotation out of leaders into other industries than a panic to dump risk assets.
On Oct. 23, though, the Dow fell 1.23% and the S&P 500 lost 0.52%. Semiconductors steadied in part, while non-tech stocks were weaker. One day of equal-weight gains cannot show that improved breadth will last.
- 10/22 S&P 500: -1.21%
- 10/22 equal weight: +0.77%
- One-day gap: 1.98 points
Fear has grown, but not every investor has capitulated
In the AAII survey provided, 36.9% of retail investors were bullish, 45.8% bearish and 17.3% neutral. Bearish sentiment leads, but that is not enough to call it the most extreme fear on record.
The BofA Bull & Bear indicator, which combines institutional fund flows and positioning, stood at 7.4. A fading sell warning for overheating is not the same as an active buy signal. Survey sentiment and actual holdings are also different numbers.
Money flowing into leveraged semiconductor ETFs during a sharp drop shows rebound hopes. It can also create selling pressure if prices bounce. What matters in flows is less the size of inflows than whether prices absorb supply and form higher lows.
- AAII bearish: 45.8%
- AAII neutral: 17.3%
- BofA indicator: 7.4
Options price tech anxiety at a higher cost
As of Oct. 22, Saxo Bank's options report showed a VIX of 19.03, a Cboe SKEW of 152.39 and a contango term structure in volatility. A VIX below 20 alone does not mean hedging demand is low.
A higher SKEW can be read as a sign that insurance against extreme downside moves is expensive. But the indicator alone does not show which investors hold which options, in which direction and in what size, or what dealer gamma exposure looks like.
The VXN measures expected volatility in Nasdaq-100 options. Given the nature of tech stocks, it normally runs above the VIX, so readers should compare not only its absolute level but also the historical spread and its direction of change. Options show the risk appetite priced in, not a date for a rebound.
- VIX, 10/22: 19.03
- SKEW, 10/22: 152.39
- Term structure: contango
One recovery of the 200-day line does not make a bottom
The Oct. 23 move back above the 200-day moving average in the SOX is an early sign that selling pressure may be easing. But a single day's technical recovery is not enough to establish a trend reversal.
The same goes for the RSI on SOXX, which was near 32, close to oversold territory. Oversold does not mean cheap. It means the decline was intense over a short period. Judging a turn requires an improving MACD, a volume-backed breakout and a defense of the prior low on the first pullback.
The Nasdaq Composite and the Nasdaq-100 are different indexes. Technical levels for the Nasdaq-100 spot index should not be mixed with QQQ dollar prices or futures prices.
This content is for information only and is not a recommendation to buy or sell any financial product.
Insight Times Editorial Desk
