The market is undergoing a fierce wave of de-risking, yet internal signals are quietly starting to shift.
Hedge funds have net sold global AI stocks for five consecutive trading sessions, completely erasing all net buying positions accumulated since the start of 2025. At the same time, Nasdaq 100 index futures have formed a strong intraday reversal pattern, the semiconductor index has touched a key support level, and South Korea's KOSPI has reached its most extreme oversold condition since October 2022.
Multiple technical indicators and positioning data suggest the market selloff is nearing its end, with buying beginning to return in small amounts. As short positions in AI stocks, small caps, and semiconductors pile up to historic highs, a trigger event could set off a massive short-covering rally.
NDX Prints Rare Hammer Candle as Sellers Lose Control
Nasdaq 100 index futures formed a large and rare hammer candle during the session, a technical signal suggesting the selling momentum behind this selloff is exhausting itself.
According to analysis from The Market Ear, a similar reversal pattern appeared at the April market low—an inverted hammer at that time—and while the shape was different, the market message was the same: selling pressure is being absorbed and buyers are beginning to counterattack. The hammer candle alone is not sufficient as a standalone trading basis, but if it receives subsequent confirmation, the rebound could be quite powerful.
As for the semiconductor index SOX, it has fallen sharply in recent trading sessions, with oversold conditions reaching extreme levels. Notably, the index has now touched the lower bound of its trading range—a support level that has historically held multiple times—while also testing its long-term trendline. This double technical support has drawn attention to short-term opportunities in the semiconductor sector.
Global Equities See Extreme Net Selling, AI Hit Hardest
According to Goldman Sachs data, the previous trading session saw aggressive global equity net selling, with net flows reaching an abnormal level of -2.1 standard deviations. The ratio of long liquidations to short sales was approximately 3 to 1, clearly pointing to active risk exposure reduction rather than outright bearish bets.
By region, the United States accounted for 66% of total global net selling, with the technology sector leading the decline; South Korea also experienced large-scale liquidation. Net selling of global AI stocks hit the second-largest scale in nearly a year, with a Z-score of -2.8.
The core logic is this: investors are not primarily expressing bearishness by adding shorts, but rather by directly selling long positions, particularly concentrated in AI and technology. This distinction means that once sentiment reverses, the "fuel" needed for a rally—namely forced short covering—is already quite plentiful.
Hedge Fund AI Positioning Wiped Out, Long-Short Ratio at Historic Lows
According to Goldman Sachs data, hedge funds have net sold global AI stocks for five consecutive trading sessions, and the entire cumulative net buying since the start of 2025 has been completely cleared, with 2025 net accumulation at the flow level declared back to zero.
On the positioning side, hedge funds' net allocation to global AI stocks has dropped from a June peak of 31.7% to 26.1%, sitting at the 49th percentile over the past year; the overall long-short ratio has fallen sharply from 4.34 to 3.27, placing it only at the 7th percentile over the past year.
The AI trade still constitutes a considerable allocation, but positioning has been significantly "cleansed." This means the previously overcrowded long structure has largely been digested, and potential selling pressure is easing.
Russell 2000 Short Positioning Heavily Crowded, Squeeze Conditions Ripening
The Russell 2000 index is currently in a deeply oversold state. Oversold conditions alone are not sufficient to constitute a buying strategy, but multiple factors combined are creating conditions for a short-term reversal.
According to CFTC data, since July, changes in Russell 2000 hedge fund short positions have shown a positive correlation with CDX high-yield spreads—meaning that as credit conditions deteriorated, hedge funds continued to add shorts. Currently, short positioning has grown quite large, and once credit conditions improve or a positive market catalyst emerges, the potential for a rapid short-covering rally should not be overlooked.
"Leopold Low 2.0"? CoreWeave Technicals Return to Initial Selloff Levels
It is reported that "AI stock god" Leopold heavily bought CoreWeave (CRWV) and other AI-related options in early September, and the current selloff unfolded in the weeks that followed. Taking the CRWV November $95 strike call option as an example, its premium has collapsed from a high of $18 on September 8 to just $1, and the contract still holds considerable open interest.
Analysis suggests the process of unwinding options positions may have further amplified the decline in the underlying asset: market makers had previously sold delta positions to hedge their short call exposure, and as the options lost value, they were forced to sell the underlying stock in reverse, creating additional downward pressure.
Currently, DRAM prices have fallen back to the previous "Leopold low" area, and CRWV's RSI has also returned to levels seen during the initial selloff. Against the triple backdrop of positioning being fully flushed out, options time value being significantly compressed, and technicals being deeply oversold, whether the market is offering a second entry window deserves close observation.
Positioning Cleanse Creates Opportunity, but Risk Management Remains the Top Priority
The core contradiction in the current market is this: oversold conditions and short-squeeze potential coexist, but downside risks have not been fully cleared. The Market Ear cited Paul Tudor Jones' classic principle to remind investors: the market doesn't care whether your judgment is correct; what matters is whether you can survive until correctness arrives.
"Nothing good happens below the 200-day moving average." This principle applies equally to investors' own profit and loss management—cutting risk exposure early and keeping positions alive is what allows an edge to compound over time.
Being right and making money are two entirely different things. In the current environment of extreme volatility, a simple and effective risk management system may be more important than any reversal prediction.
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