OVERVIEW
No Slowdown in Selling—Here’s What’s Next

Right now, the U.S. equities market is experiencing what feels like a controlled crash. With over $5 trillion in market cap wiped out in just the past month, this is far more than a routine correction.

While much of the blame has been directed at Trump and the escalating trade war, these headlines are only part of the story. The reality is that the market’s weakness has been building for months. The data tells a clear story—liquidity is drying up, institutions have been steadily exiting, and risk appetite is fading. Hedge funds and large institutions are now the most net short they’ve been since 2021, meaning the biggest players in the market have already rotated out, leaving retail traders and smaller funds more exposed to further downside.

This isn’t just about selling pressure. The capital leaving equities has been moving into defensive assets at a rapid pace, with gold up 14% year-to-date while the broad market is down close to 10%. Historically, when capital moves aggressively into gold, it signals a strong risk-off environment where market participants are prioritizing safety over growth.

For this to change, institutions need to show signs of stepping back in. The first indication would be a slowdown in net selling, which is difficult to track in real time but often shows up through stronger price action in leading stocks. A sustainable reversal would also require a broad improvement in market participation, with more stocks regaining key levels and breaking the pattern of lower highs and lower lows.

Right now, the data suggests that this process hasn’t started yet. Until we see a shift in institutional behavior, the trend remains lower, and any rallies are likely to be short-lived.

Nasdaq

The Nasdaq, typically the strongest of the major indices due to its reliance on tech giants like NVDA and MSFT, continues to break down in one of the most linear sell-offs we’ve seen in recent years. The daily chart clearly illustrates how well-respected this steep downtrend has been, with the past three to four weeks showing no successful break above the descending resistance level.

This level of consistency in the decline suggests aggressive and sustained institutional selling, with very little effort from buyers to step in and defend key levels. When a sell-off follows such a controlled and linear path, it often indicates that large players are unloading positions in a disciplined manner rather than in a panic. This differs from a sharp capitulation event, where a rapid decline leads to a violent rebound. Instead, what we’re seeing here is a methodical distribution, a more concerning sign for bulls.

The Visible Range Volume Profile (VRVP) is now highlighting a dense support zone, where selling pressure appears to be slowing as volume has notably declined over the past few sessions. While this may indicate some short-term exhaustion, it does not yet look structurally bullish. Buyers have not demonstrated any real commitment, and without a meaningful shift in momentum, any pause in selling could simply be a setup for further downside continuation.

S&P Midcap 400

The midcaps are experiencing the same kind of aggressive sell-off as the broader market, but what stands out here is the clear divergence between price and volume. To fully grasp the significance of this, it's important to break down what price and volume each represent. Price dictates the direction of the move, while volume confirms its strength—think of volume as the fuel driving price action.

Over the past few weeks, we've seen a notable reduction in selling volume, and it has been occurring in a very linear fashion, even as price continues to decline sharply. This type of divergence typically suggests that the sell-off is losing momentum, as there is progressively less fuel behind each new leg lower. In other words, while prices are still falling, the intensity of the selling pressure appears to be fading.

This could very well lead to the MDY beginning to form a bottom soon, particularly if selling volume continues to decline while price starts to stabilize. The best-case scenario would be a high-volume reversal extension candle, signaling clear seller exhaustion and a shift in momentum. However, we are not seeing that just yet.

Russell 2000

Small caps are exhibiting the same linear decline in net selling volume even as prices continue to plunge lower, carrying the same implications we discussed earlier. While the drop in volume suggests selling pressure may be fading, it does not yet indicate that buyers are stepping in with force.

What makes the small-cap situation particularly brutal is that they have now erased nearly four years of gains. For small-cap investors, this is a devastating development, highlighting just how little love this segment of the market receives compared to the dominant big and mega-cap tech names.

This severe underperformance isn’t just a short-term phenomenon—it’s a reflection of how capital has increasingly flowed toward larger, more stable companies, particularly in uncertain market environments. While small caps can offer explosive upside in bull markets, they also suffer the most in periods of risk aversion, as investors favor the liquidity and perceived safety of larger names.

DAILY FOCUS
The Big Players Are Still Selling

Institutional selling remains the dominant force in this market, and until that changes, the risk remains skewed to the downside. The data continues to show a clear trend: hedge funds and institutions have been net sellers for weeks, while retail traders have been net buyers. This is a classic sign of distribution—when smart money offloads shares to less-informed participants before deeper declines.

The price action confirms this. Despite occasional intraday bounces, every attempt at strength has been met with renewed selling. The Nasdaq, which typically benefits from the resilience of mega-cap tech, remains locked in a steep downtrend with no meaningful break above resistance. The S&P 500 and Russell 2000 have also shown relentless weakness, with small caps erasing four years of gains.

One of the most critical indicators to watch right now is breadth. We continue to see an overwhelming percentage of stocks trading below key moving averages, a sign that this sell-off is broad-based, not isolated to just a few sectors. Selling pressure is widespread, and leadership is almost nonexistent outside of defensive plays like gold and select international markets, particularly China.

However, there are subtle signs that momentum is starting to wane. Selling volume has been decreasing, especially in mid and small caps, suggesting that while prices are still falling, the fuel behind the move may be running low. This is an early—but inconclusive—signal that we could be approaching a short-term bottom. What we need to see next is confirmation: a meaningful reversal with a surge in buying volume, clear leadership emerging, and institutions stepping back in.

WATCHLIST
Can You Guess The Sector…?

YUM China Holdings, Inc.

• YUMC has been steadily building a long-term base since its initial surge in October 2024. Following that strong move, we’ve seen a series of cup-and-handle formations develop, signaling ongoing accumulation. Since early 2025, YUMC has been bottoming out, forming a sequence of higher lows while price compresses below a descending resistance level.

• This tightening price action, coupled with upward-turning moving averages and a gradual contraction in volume, is a textbook setup for a potential breakout. Reduced volume during consolidation often precedes an expansion move, as supply dries up before demand takes over.

• Notably, YUMC is showing early signs of traction in premarket, which could indicate growing interest from buyers. A decisive breakout with strong volume would confirm the setup, making it one to watch closely.

BABA: Alibaba Group Holdings Ltd.

• BABA continues to stand out as a leader, dominating all of our momentum scans. It has been forming a textbook volatility contraction pattern (VCP) on its daily chart, with consistent demand stepping in on each pullback while volume steadily declines—a classic sign of accumulation.

• Now, in premarket, BABA is pushing through overhead resistance, signaling a potential breakout. While some supply remains overhead, the structure of this setup is incredibly favorable. The smooth, linear nature of its chart makes it a highly trader-friendly stock, as clean price action typically attracts more participation.