US equity quantitative funds have just completed a rare major position cleaning.
CTA (Trend Tracking Quantitative Fund) saw its overall position sharply shift from an extremely over-balanced state at the end of August to a slightly bearish stance, with a fluctuation of more than 3 standard deviations within a month – a situation with almost no precedent in recent years. The release of selling pressure has significantly opened up potential buying opportunities.
Meanwhile, U.S. companies have authorized a record $1.3 trillion in share repurchases this year, with the execution period to be gradually reopened starting from October 15th.
Position cleaning, repurchasing of "ammunition" in place, the strong seasonal trend of the fourth quarter in an midterm election year – the conditions for a "short squeeze" are taking shape.
Position cleared, ammunition ready to be fired.
According to the research of strategist Rubner, the Z-value (an indicator measuring the deviation of positions from normal) of CTA's holdings plummeted from +2.35 at the end of August to -0.80, shifting from a highly bullish stance to below neutral. After the selling pressure was released, the direction of capital flow has reversed.
The corporate side has considerable momentum. $1.3 trillion has been authorized for repurchases, with a large portion awaiting execution after the quiet period of the third-quarter reports ends. The repurchase window will gradually open starting from October 15th, and historically, corporate repurchase efforts tend to accelerate further in November.
Seasonality also favors the bulls. Rubner data shows that since 1930, the S&P 500 has averaged a gain of 5.6% in the fourth quarter of midterm election years, which is nearly twice the average of 2.9% for all other years. October and November have traditionally been the strongest months in midterm election years.
Tech stocks refuse to fall
Under the impact of interest rates, the tech sector has shown rare resilience. Nasdaq 100 index futures are approaching the key resistance level of 31,200 points, and the 50-day moving average is rising again; the Philadelphia Semiconductor Index has broken through short-term resistance and is close to a record high.
AI The low sensitivity of capital expenditure to interest rates is key. According to Goldman Sachs, bond issuance by hyperscalers in the cloud industry (such as Google and Amazon) is expected to reach $420 billion by 2027, but interest expenses still account for a very small portion of their profits. According to Morgan Stanley, these companies have a net leverage ratio of only 0.4 times, and their cash reserves are equivalent to 132% of their debt – AI Infrastructure construction has not encountered any balance sheet bottlenecks.
There is an asymmetry hidden here: AI spending itself does not depend on low interest rates, but if interest rates eventually fall, tech stock valuations will benefit directly – spending remains unabated under high interest rates, and valuations are more resilient during low interest rate periods.
The expected reset in the semiconductor sector has provided additional fuel for a bear market. According to Goldman Sachs, the pricing expectations for traditional storage and HBM (high-bandwidth memory) had previously been significantly lowered, and now they are beginning to recover, with more and more investors looking for upside potential in pricing. JPMorgan Chase pointed out that the profit prospects for semiconductor hardware are solid, and the demand for TSMC AI accelerators is strong, with utilization rates of advanced manufacturing processes exceeding 100%.
Expected reset, fundamental improvement, technical breakout – the classic formula for forcing a short squeeze.
The biggest macroeconomic variable in the fourth quarter remains crude oil. According to Goldman Sachs, although global crude oil inventories are above the minimum operating levels, the buffer has significantly thinned, and an oil price of $100 is not contradictory to the current supply-demand balance. The Volatility Index for Crude Oil ( OVX ) is currently at the same level as when oil prices were below $80, and the pricing of tail risks may be insufficient.
