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Dimitry Nakhla | Babylon Capital®
RT @SoJustFollowMe: I see a reversal in the behavior of trading algos in $NFLX itself – they stopped aggressive selling three weeks ago and have started to carefully build positions.

I see that $SPY, $QQQ and $MAGS are preparing for growth, which means there is a high probability that 80% of stocks will rise.

I see a reversal that has turned into a strong uptrend in $XLC, which I wrote about back in mid-November. And $NFLX is the third-largest weight there, after $GOOGL and $META.

I see the actions of trading algorithms in $GOOGL and $META – they are clearly about to shift into growth, and therefore will pull $NFLX along with them.

I see the same thing in $FDN, where $NFLX ranks fourth by weight, after $GOOG, $AMZN and $META.

I could keep listing examples, but I think this is already enough. Right?

What is important to understand:
1. $NFLX has a relatively low weight, which means it depends on other heavyweights.
2. The turn of the year ALWAYS leads to changes in trading algo behavior, and I have no idea which settings will change starting Jan 2.
3. And most importantly, we must not forget that M2SL is 0.9% away from the threshold – this will happen for the first time in 25 years, and I have no idea what configuration trading algos have for this. This could introduce a significant imbalance even into the benchmark, let alone all other stocks.

I hope I’ve provided a sufficiently detailed answer.



🚨 THE COLLAPSE OF THE AI BUBBLE.
PART TWO – PRACTICAL.

Let’s analyze how the market reacted on the daily timeframe each time the SPX/M2SL money supply index reached its all-time high during the Dot-com Bubble:

1️⃣ July 16, 1999 – down 11%
2️⃣ December 23, 1999 – down 8%
3️⃣ March 22, 2000 – down 12%
4️⃣ July 14, 2000 – down 5%
5️⃣ August 28, 2000 – down 48%

Consider this – the SPX/M2SL indicator is approaching the same level for the first time in 25 years‼️ For the remainder of this year and all of 2026, this chart is the most important for me.

Key takeaways:
▫️ The market rose from $130.13 in early June 1999 to $155.75 in March 2000 – a 19.7% increase❗️
▫️ From April to August 2000, the market traded in a wide sideways range from $133.5 to $153.39 – a potential additional 14.8% gain❗️
▫️ 13 full months passed from the first touch to the crash❗️

Fast-forward to the present:
▫️ Does this guarantee the exact same scenario will repeat? – Of course not.
▫️ Does this guarantee an AI bubble collapse with the same consequences? – No.
▫️ Could it be that the AI bubble won’t collapse? – Mathematically, it’s possible, though in my view extremely unlikely. As a mathematician, I have to answer: yes, but purely theoretical. In that case, the market might avoid a full collapse through some combination of a liquidity surge and a strong, rapid correction – without a prolonged bear market. However, this would, in turn, lead to an uncontrolled surge in inflation and all the consequences that follow. The situation is almost like a stalemate.

What to keep in mind:
▫️ Trading algorithms see this level, and approaching it triggers a stress reaction – the entire market nervousness in October, visible to the naked eye, confirms this.
▫️ Smart money / big money algorithms and hedge funds need sufficient time to unload positions without significant losses.

If this post gets 200 likes and comments – I will, first, notify you the moment the indicator hits its all-time Dot-com Bubble high intraday (turn on notifications for my new posts), and second, continue to publicly update and analyze all subsequent events related to SPX/M2SL as they happen.

- Denistratos
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