GS Lee Coppersmith recent observations

Korean stocks just suffered their 4th worst session on record overnight. Most of the narrative has centered around concerns over circular AI financing and China’s advancing DUV capabilities potentially increasing memory supply, or just less AI spending overall. While these matter, the bigger takeaway is probably simpler: leverage works in both directions.

Positioning has cleaned up meaningfully over the past several sessions, even if the starting point was exceptionally crowded. AI selling has also become increasingly indiscriminate. Our US AI pair is now down more than 30% from its highs – the largest drawdown on record.

That said, it’s difficult to argue we simply return to the tape we had a month ago. One reason is we’ve likely seen peak demand for leverage. Higher realized volatility, larger intraday ranges and a much tougher PnL environment should naturally reduce gross exposure across the system. Positioning may recover, but market structure has likely changed... July is leaving some lasting scars. A few observations from the unwind: Yesterday SMH just traded its largest volume day in more than five years alongside enormous put activity and monetization.