AI financial extinction is the most crowded trade...
On the same day that AI stocks went late stage parabolic, we got this perfect headline, below - Tech executives, who gratuitously used the term "AI" a record number of times on their most recent earnings calls are now warning that Silly Con Valley's latest hype cycle could lead to mass extinction as a minor side effect of improving mankind.
Tuesday's debt ceiling rally: 0%.
Also today, the debt debacle cleared a procedural hurdle leading towards the official House vote tomorrow evening (Wednesday). It's likely that the bill will pass since a majority of moderate Democrats and Republicans can finally agree on one thing - they don't want their own stocks to implode.
In my last post I said the market would likely selloff into the "vote" which would mean a rollover from this "deal rally" of 0%. I still believe that continued downside is the path of least resistance, however persistent short-covering *could* save bulls until the deal is finalized. Or the market could explode any time.
Bulls have this much margin of error:
Aside from this debt ceiling saga, the main event continues to be the Artificial Intelligence melt-up rally. As has been mentioned many times, it's an extremely narrow rally focused almost entirely on the largest cap stocks. Market concentration at the end of the cycle is the hallmark of every bear market, because passive dumb money keeps plowing into the cap-weighted indices while the broader market collapses amid widely ignored recession:
"This years winners are few, but the losers are many, including: energy, utilities, healthcare, real estate, consumer staples, materials, industrials and banks"
“If you stray from a small portion of the tech complex, you’re gonna be destroyed.”
When I read that, I thought I must be bullish too, because sometimes when you read Cramer, it's hard to tell if he is bearish or bullish until you remember that he is always bullish. In what world is it bullish to only own one erroneously believed "recession-proof" sector while the rest of the market gets destroyed? If you're a bull, you have to have the IQ of a dead gopher to call that bullish. Hence it's consensus.
Which gets us to AI mass extinction the most crowded trade.
All hedge funds and all speculators are now crowded into a handful of massively overbought and overbelieved stocks. Which is a recipe for a super crash. The selloff will be fast and brutal.
"The last time this happened, the S&P 500 topped during the dot-com bubble and subsequently lost almost half of its value"
"20% of the S&P 500's components are beating the index on a trailing-three-month basis. The last time such a small percentage of S&P 500 stocks were outperforming the broad-based index was March 2000"
This month marks Google's best three month run since the 2007 top:
Microsoft's best 3 month *bank* run since 1999
In summary, today's bulls tell us that "overbought" can always become more overbought.
History will say that the only thing that was over bought in this era was artificially intelligent bull shit.
