THE BIG IDEA
Last week’s Seen On The Internets was about an individual investor who got wiped out from betting it all, and more, on space-related stocks. This past week, something similar happened on a grander scale.
If you have a day job or have a life outside of the stock market, you may have missed the story of Leopold Aschenbrenner. What you are about to read in the next paragraph is factually correct information even if it seems like some sort of AI hallucination.
Leopold Aschenbrenner is 24 years old. Already in his life he has been valedictorian at Columbia University, worked on the FTX Future Fund for the notorious Sam Bankman-Fried, was a “former researcher” at OpenAI, and - as of last week - a FORMER hedge fund manager with a $40 billion portfolio.
Honest to God, we are not making this up.
His hedge fund, called Situational Awareness, blew up last week after his leveraged investments in AI-related companies went wrong.
When you borrow $3 for every dollar of capital you have, you can turn a 20% gain into 80%. That’s what Aschenbrenner did and produced some amazing results while AI stocks were going up, up, up.
The problem is that the same thing happens in the other direction. A 25% crash means it is GAME OVER.
But enough about Leopold.
What does this mean for the rest of us?
The demise of Situational Awareness was probably both a symptom and a cause of the bloodbath in many tech-related stocks last month.
Swingy must have known something when he told us last week that people might “get nervouser”. The lenders to Situational Awareness were getting nervous and, by mid-week, demanded repayment of their billions in loans to the fund. The forced fire sale only pushed the market down even further.
Below is the recent performance of the Roundhill Generative AI & Technology ETF (CHAT) up to the end of Situational Awareness. They own(ed) many of the same stocks.
CHAT is a non-leveraged fund and was down by 10% just in the first three days of last week. Dramatic moments like this one have a way of marking important bottoms in the market.
So long as you do not panic or become an involuntary seller yourself, you can profit in these times.
SEEN ON THE INTERNETS
This week we came across two items both referencing the same data, the Goldman Sachs High Beta Momentum Basket. In layman’s terms it is a portfolio comprised of “hot money” stocks.
Well, those hot money stocks got whacked hard in July. The chart below, published on hedgeye.com as the market hit bottom, may be hard to read. That thin little red line on the right-hand side going down to -37.07 represents a 37% loss for the portfolio MTD as of publication time. That would be a worse month than anytime during COVID or even the Great Financial Crisis.
The same data was referenced by Morningstar in their month-end article titled July ends on a hopeful note for stocks after momentum trade sees biggest wipeout since 2000.
The money quote from that article is:
Mike Shell, chief investment officer of Shell Capital, said that he has seen data furnished by his prime brokers that suggest this latest momentum liquidation is closer to its end than its beginning.
It may not be straight up from here, but you could find some good swing trades.
NUMBERS ONLY
79.70 | The NAAIM exposure index is the lowest it has been in six weeks, but still well above the levels of the 2022 bear market. |
- 46.57% | A symptom of an overheated market, shares of Sandisk (SNDK) plunged by 46.57% in July but are still up 5X since the start of the year. |
$108.37 | Shares of Spacex (SPCX) closed at $108.37 on Friday, its lowest price since going public in June. |
SWINGEX INDEX
As of market close on: 31 July 2026
Swingy says: The near future looks a bit uncertain. Blame it on Leopold!
Learn more about how the Swingex Index works here.
WATCHER
Stocks highlighted here each week are not recommendations to buy or sell. They are provided as ideas for swing traders to follow up on with their own research.
TEM (Tempus AI): We’ll stick with the overall theme of this week’s newsletter and consider a swing trade in Tempus AI.
TEM is a good example of what has been happening in the market. Even after a rebound in the couple of days, the shares are still down by 40% in less than a month.
We don’t expect a return to $60 anytime soon. However, something in the area of $48 to $52 is very possible for several reasons.
That was a congestion area for the stock back in June and would be a likely place for prices to go now. It is also a region that TEM mostly skipped over on the way down in July.
Also, not shown on the chart, but Fibonacci retracement levels of 38.2% and 50% would correspond to roughly $49.25 and $52.00 respectively.