Can a weak July really be blamed on a 20‑something hedge fund manager with zero prior trading experience who ran a highly concentrated book with 4‑to‑1 leverage to the AI trade? For now, it seems that way.
To me, the situation at Situational Awareness is just another example of why getting caught up in themes and narratives makes little sense. Adding leverage and correlation to the mix makes even less sense. But we live in a world where you can literally bet on anything.
We will continue to stick to what we do best: putting data ahead of feelings through a quantitative, technical approach.
S&P 500 and NASDAQ 100
Both indices remain in long‑term uptrends above rising 60‑week moving averages. Both experienced weakness early in the week before reversing course and closing Friday near the top of their weekly ranges.
For now, both retain the benefit of the doubt on the bullish side.
Source: Optuma
NYSE Advance/Decline Line
The bullish long‑term trend in the two most important equity indices in the world continues to play out while the NYSE Advance/Decline Line trades near record highs.
At the same time, the Roundhill Magnificent Seven ETF (MAGS) has rebounded after making a higher low.
The ideal scenario is for the A/D Line to break to new highs, signaling broad participation, while the Mag 7 follows suit either simultaneously or shortly thereafter. That would suggest the bulls have more room to run.
Source: Optuma
Transports and Semiconductors
From an intermarket perspective, both the Dow Jones Transportation Average and the PHLX Semiconductor Index remain in long‑term uptrends despite recent weakness.
Both are trading above rising 27‑week moving averages, with the semis testing that moving average last week before rebounding.
That is exactly what bulls would want to see.
Source: Optuma
Small Caps
While all the drama plays out in the AI narrative, the S&P 600 remains quietly near record levels on an absolute basis. The relative trend continues to improve and trades above the rising 10-week moving average.
Source: Optuma
The Momentum Factor
Finally, let's discuss what really happened in July. You can attach whatever narrative you want to it, but at its core, this was a momentum crash.
The iShares MSCI USA Momentum Factor ETF (MTUM) became extremely extended above its 200‑day moving average. In fact, the 200‑day Z‑score approached five. That is obviously not sustainable.
All that was needed was a catalyst. Enter Situational Awareness.
Source: Optuma
Final Thoughts
July felt dramatic because the narrative was dramatic. A young hedge fund manager, leverage, AI, forced selling, and big price swings make for great headlines.
For now, the market looks less like a major top and more like a momentum shakeout that got people talking. The bulls still own the trend, and until the data says otherwise, they deserve the benefit of the doubt.
