Reasons To Be Concerned:

Rumors & Margin Calls

There was a rumor that the $26.4 billion hedge fund, VARA Ai Hedge fund was getting blown out, which, if true, added to portfolio insurance. That could have been part of it, but there were waves of margin call selling going on at the CME Group, CBOE, and most or all of the US exchanges. The exchanges run their margin risk, they send it to the clearing firms, and if you clear directly with the clearing firm, you get a margin call sent to you. If you clear through an IB of a broker-dealer, it's sent to the clearing broker and then sent out to the IBs or broker-dealers. As I have said in the past, these margin calls used to be sent out at 10:30 am and 1:30 or 2:30, but over the last several years, a customer or a high-risk position can get a margin call 24 hours a day.

The problem is that everyone has long stock positions, and instead of getting out, they use portfolio insurance to protect, which is a risk-management strategy designed to protect investment portfolios against large market declines while still allowing investors to participate when stocks rally. The strategy became famous during the October 19, 1987 stock market crash, known as Black Monday, when the Dow Jones Industrial Average plunged 22.6% in a single session. Back then, large institutional investors used computer-driven trading programs to automatically sell S&P 500 futures as the stock market declined. For example, imagine a fund managing $1 billion in stocks. When the market was rising, the fund maintained its exposure, but if stocks dropped 2%, the program would begin selling S&P futures to hedge against further losses. If the market fell 5%, it would sell additional futures, and if the decline reached 10%, the selling would accelerate as the program attempted to protect the portfolio. These percentages are illustrative, not fixed triggers used by every program. The problem was that thousands of institutions were using similar strategies, and as the market fell, their programs kept generating additional sell orders. Instead of stabilizing the market, portfolio insurance contributed to a vicious cycle of selling that helped accelerate the 1987 crash. The more the market fell, the more futures the programs needed to sell, and the more they sold, the greater the downward pressure on the market.

I fully admit I didn’t expect the NQ to fall 2.5% on Friday and 5.52% for the week, but it was already signaling it. Bottom line: NQZ26 finished lower in 7 of 8 trading sessions. From the October 6 settlement of 31,483.25 to the October 16 settlement of 29,391.50, the Nasdaq futures lost a net 2,091.75 points, or 6.64%, but are still up 15.6% YTD. While the ES did fall over 1%, it wasn't as bad as the NQ fall last week. The ES fell 4 the last 5 sessions for a total loss 155.50 points, or 1.98%. It declined in 6 of the last 8 sessions, losing 169.75 points, or 2.16%, still up 9.46% YTD, and YMZ26 settled higher in 4 and lower in 4 of the eight sessions through October 16. It gained 398 points (+0.77%) from the October 6 settlement of 51,816 to the October 16 settlement of 52,214, and 288 points (+0.55%) over the five sessions from the October 9 settlement of 51,926, outperforming both the ES and NQ over these periods.

Broadcom CEO Hock Tan Warned On Monday

I think we are living in a world of uncertainty. Last week, Broadcom CEO Hock Tan warned that capital will become the biggest constraint on the continued expansion of artificial intelligence, comparing some of the investment pouring into the sector to "casino gambling." Speaking at a panel in Singapore, Tan said the company is making progress in overcoming semiconductor wafer and memory shortages, but securing enough capital to support the massive AI buildout will be the biggest challenge going forward. He acknowledged that leading AI developers such as Anthropic and OpenAI have demonstrated the ability to generate significant revenue from their latest AI models and personal assistants. However, he cautioned that many investors are pouring money into the sector without fully understanding what they are investing in. "A lot of investors have no clue what they're investing in, but set very extreme expectations, only to find out that it's almost like they are in a casino gambling," Tan said when asked about the impact of cheaper AI models

In the end, it was a week filled with false starts and heavy selling. One recent cash-index comparison was the week ending June 26, 2026, when the S&P 500 fell 1.95%. The index fell every day that week (longest losing streak in months at the time), with tech/AI stocks under selling pressure. In terms of the ES's overall trade, volume was the highest of the week at 2.278 million contracts traded.

Follow along with Trey’s presentation: Download last night’s slides (PDF).

TL;DR | The AI Boom Has a Math Problem

By Manny Payano

I think AI could be the biggest technological breakthrough since the Internet. I use it, I’m excited about it, and I believe its potential is enormous. But transformative technology doesn’t automatically make every related stock worth buying.

My concern is the economics: AI capabilities are getting cheaper while the companies building them face huge spending on data centers, chips, and electricity. Strong demand alone doesn’t settle the question of how much profit those investments will produce.

The S&P 500’s dependence on a handful of technology companies makes that question especially important. Investors are paying today for earnings they expect years from now.

I’m not calling for an AI crash. I’m saying earnings, infrastructure costs, and the price investors pay will matter. The Internet changed the world, but plenty of investors still lost money. AI can be an incredible technology, while the stocks connected to it remain overpriced.

Friday’s early strength did not survive the cash open. The ES opened Globex at 7788.75 and reached 7809.50 in the 4:25 a.m. ET interval. It was still near 7803 ahead of the bell, but the regular session opened at 7802.75 and immediately failed to build on that overnight bid.

The first half hour established the day’s RTH high at 7803.25. By noon, the ES was trading around 7740.50, and the selling carried into the afternoon. The 3:05 p.m. interval printed the session low at 7676, a 133.50-point retreat from the overnight high.

There was a late bounce, but it did not repair the damage. The 3:50 p.m. snapshot was 7698, and the 4:00 p.m. snapshot was 7696. The last regular-session interval finished at 7702.75; the ES ended the full session at 7703, with official settlement at 7704.25. Volume totaled 2.287 million.

The NQ had the heavier tone. It traded down to 29268.75 and settled at 29391.50, a loss of 752.25 points, or 2.50%, from Thursday’s settlement. The ES lost 86.75 points, or 1.11%. Late buying lifted prices off their lows, but both markets left substantial overhead ground to recover.

Buy Imbalances Fade Into Friday’s Close

The Reveal for the MOC on October 16 was $3.9 billion to buy. Buy dollars represented about 71% of the total, while 57% of participating symbols leaned to the buy side. That was a broad positive indication, but the dollar imbalance was much stronger than the number of names participating. The buying later faded, with roughly $1.3 billion left at 3:56 p.m. and $338.0 million at the final 4:00 p.m. reading. The final snapshot remained positive, with about 61% of dollars and 58% of symbols leaning buy. The 3:55 p.m. period through the close is usually discretionary traders closing out the day; those readings do not identify the traders behind individual orders.

The largest buyers were concentrated in technology and growth. MSFT led at $455.6 million, followed by META at $319.3 million and NVDA at $313.3 million. AMZN and TSLA were also prominent. The selling side looked different: PAYX and GILD topped that list at $114.7 million and $111.9 million, with ABNB and CPRT among the next names offered.

At the Reveal, information technology supplied approximately $1.2 billion of net buying. Financials contributed about $751.7 million, consumer discretionary $640.1 million, and communication services $514.6 million. Communication services showed a useful split: strong buy dollars despite a majority of its symbols leaning sell. Energy was the negative dollar exception.

The overall feel was buying support with limited staying power. The initial size was encouraging, but the smaller closing balance argues against treating that early demand as an all-clear signal.

How the NYSE and Nasdaq auctions work

How to read the MIM

Manny Payano — The Market Open

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Economic Calendar

Earnings Calendar

Polaris Trading Group

Polaris Trading Group’s Friday session began with Cycle Day 3 and monthly options expiration sharing the stage. David’s overnight recap described a market holding its 7,780 line in the sand and reaching the 7,805 second upside target. That constructive starting point did not become a fixed bullish commitment. He called directional dominance a wild card, and the room’s later posts tracked a decisive change: the repair rally gave way to weakness, downside objectives were reached, and afternoon bounces had to prove they could hold.

Cycle Day 3 meets expiration

• David noted that price was above the Cycle Day 1 low at 7,741 and had achieved the initial three-day-cycle objective. Additional upside targets remained conditional on buyers extending the move.

• With expiration in play, his emphasis was alignment, assignment and attack. The overnight strength supplied a starting map, not a reason to ignore a change in direction after the cash open.

The line in the sand

• The room returned to 7,780 as an important reference during the morning. A later update described price back-testing that level, making the response there more useful than an assumption that overnight support would continue to hold.

Reading the developing weakness

• Member commentary focused on price trading under the 13-period exponential moving average and a lead line turning red. David clarified that the lead line was the 13 EMA.

• The practical discussion concerned context: direction, the day’s expected range and waiting for the right entry. The room’s posts support describing those decision points without turning an indicator change into a guaranteed result.

Downside objectives begin to fill

• David later reported the 7,745 lower target fulfilled. His commentary then treated additional downside as a bonus rather than a reason to keep extending expectations without reference to the day’s range.

• He attributed some of the pressure to a shift toward negative gamma exposure and dealer selling into weakness.

The violation target and risk management

• In the afternoon, David reported that the Cycle Day 3 violation target at 7,697 had been fulfilled and that the expected range was satisfied.

• He then told shorts to tighten trailing stops. A subsequent post described a reversal from the violation level. The sequence matters: reaching a downside objective changed the risk discussion even though the broader structure remained weak.

Bounces need a base

• The room discussed a BLT long from a key level and watched for a potential 2 p.m. shakeout. David warned that sellers could bid price higher to squeeze shorts and seek better selling prices.

• Later commentary said there had not been enough base-building to support a sustained rally. He treated bounces as risk-off selling opportunities, followed by another test of the lows and the D-Level Money Box zone.

The late-session test

• As the afternoon progressed, David warned against fading a Friday trend move. Later posts asked whether a rebound had legs or was another long trap.

• He identified 7,700 as a level buyers needed to clear cleanly. His separate auction estimate remains a room observation; this issue’s MOC section uses the dated dashboard evidence for its own imbalance figures.

Execution takeaway

• The useful lesson was flexibility. The room began with an overnight upside objective achieved, then followed a move through downside targets while adjusting its risk once the expected range was satisfied.

Polaris Trading Group’s Daily Trade Strategy

DTG Room Preview

The DTG group is watching whether the overnight recovery can hold after Friday’s break of the short-term rising channel. The group describes the short-term trend as bearish while noting a bullish bias among the larger-volume overnight participants on light trade.

Session backdrop

• The group’s five-day average daily range has expanded to 85.50 points, compared with 69.50 on Thursday.

• The 50-day moving average near 7775.50 is an overhead reference. A retest of the broken short-term channel could meet resistance.

• The group is watching the 10:00 a.m. ET NAHB Housing Market Index release.

Levels to watch

• Support: 7680–7685 at the lower boundary of the new rising channel, then 7409–7414.

• Resistance zones: 7792–7797, 7893–7898, 7924–7929, and 8014–8019.

• Watch whether support attracts sustained buying and whether a channel retest is accepted or rejected; these are conditional references from the DTG group.