Capitulation: A Potential Change of Character

Weekly Outlook 08/03/26

Market Recap

Last week closed on a bearish note with $QQQ sitting right on the edge of its consolidation range and the leading memory names looking ready to roll back into the downtrend, and both resolved the way the tape was pointing.

The selloff culminated on Wednesday after the Fed held at 3.50% to 3.75% for a fifth straight meeting on a 9-3 vote, with Hammack, Kashkari and Logan all dissenting in favour of a hike. The initial reaction was higher, but reversed sharply into the close.

Afterwards we found out that part of it was forced liquidation, as Leopold Aschenbrenner’s Situational Awareness fund had been running leverage as high as 4x across AI infrastructure, power, data centres and bitcoin miners, off a peak near $45 billion at the start of July. Thursday morning news broke that the Citadel had bought the entire portfolio. The overhang cleared and the all major indices reversed sharply to the upside, led by the memory and AI stocks that Leopold had capitulated from. It was also helped by Samsung reporting record chip profit and warning that shortages get more acute into 2028, while $MSFT did the heavy lifting up top, adding roughly $450 billion in market value in the largest single-day market cap gain in history after Azure accelerated to 43%.

Friday was digestion, with the indices closing up modestly, while $AMZN carried the tape and $AAPL went the other way after earnings. Into the close Trump was threatening further escalation against Iran, saying the US would be hitting them very hard, and crude held its bid on it. That came off over the weekend, when he said the US had agreed to pause attacks, citing the perimeters of a deal that would include a complete reopening of the Strait of Hormuz, and adding that Iran and other Middle Eastern countries had asked him to hold off.

Going into next week the technical picture has potential to change, with $SPY‘s bullish reversal putting price back inside the range, and the failure to break down through short term support.

$QQQ came close to testing the 200sma, almost tagged it on the futures, then retraced all the way back above the breakdown level, which gives us a potential higher low. This week decides whether we get the follow through day and the risk on environment back, or whether Thursday was simply the mechanical bounce that comes once a forced seller has finished selling.

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Watchlist

Earnings season continues with more tech and AI names reporting this week:

Korea. After a short term capitulation with the KOSPI topping in June and drawing down around -45% from the highs on last Wednesday, reversing sharply closing up 17.91% for the largest single-day gain in the index’s history. That is likely a short term capitulation which could lead to a further bounce. $EWY and $KORU are the vehicles, with Fridays close as a potential higher low in the start of this countertrend bounce.

Memory. $SNDK, $MU and $DRAM stay the core basket and will trade in the same direction as Korea and $QQQ rather than independently of them. $SNDK reports FQ4 after the close Wednesday with NAND pricing and supply guidance the numbers that matter, which lands directly on top of Samsung’s call that shortages get more acute and run into 2028.

The capitulation names. $NBIS and $BE are both extremely volatile with real fundamentals underneath, and both were core to the book that just got liquidated. Bloom Energy was the fund’s largest disclosed position at roughly 23% of the 13F, and the Nebius stake was built after the March filing, with $2.6 billion disclosed in May. $NBIS had fallen more than 46% over the month into Thursday, then both ripped once Citadel absorbed the block, $NBIS +27.1% and $BE +25.6% by mid afternoon. The forced seller is gone. Whether the bid that replaced it stays is the question.

Relative strength. These held up through the correction and are consolidating on the daily, which is the behaviour that leads if this resolves higher.

$DELL Still holding the base it built while the rest of AI hardware broke down

$HPE Same profile, quietly constructive through the worst of the tape

$AVGO Held structure better than the chips around it

$HUT Ripped 22.5% Thursday despite the fund having already exited the position, which makes the move cohort-wide rather than mechanical

$ANET Reports Q2 after the close Tuesday

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Closing Thoughts

Last week we said the turn would announce itself with an obvious change of character. Thursday and Friday may have been it. The forced liquidation of the Situational Awareness fund could be overall represent a wider leverage reset, with many AI tech stocks having drawn down 50% since the highs. Add Korea rebounding out of a 41% drawdown from the highs and a 18% upday in a single session and the signs of a potential turn is there.

What matters now is whether the indices hold the higher low and take out last week’s highs, to determine if this was just a violent bounce or the potential opening leg of a new uptrend. In addition, watching how stocks respond to news and earnings this week will tell us if there is an overall positive shift in market tone after the market has been correcting sideways for the last couple of months.

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If you enjoyed this read, please consider leaving a like on the post, and let me know in the comments if I missed anything or what you’re watching for this week!

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P.S.

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