By now you know I’m a long-term AI bull. At the same time, you’d have to have your head buried in the sand to not see the AI selloff last week. Or the rebound yesterday.
Most institutional investors are bullish on the AI sector long-term. So, why are so many bearish on certain AI stocks right now? It comes down to one reason…
How a $1 Bill Could Be the Key to Tapping Some of the Fastest Gains
Table of Contents
The Big Picture
I don’t bring partisan politics into the trading discussion. My politics is my politics, and your politics is yours.
That said, to square the circle on the AI trade, you have to combine what you know about trading with how the midterm elections could affect the sector.
Let’s start by understanding the risk institutional investors take.
Other People’s Money
You and I can trade our own money without leverage. In fact, I encourage you to trade a cash account until you’re consistent.
But hedge funds and big investors are different. These guys are trading other people’s money. And almost all of them are leveraged in some way.
Your Risk Versus Institutional Risk
I preach risk management every single day. I always tell you to:
- Have a number that you’re comfortable losing
- Never lose more than your number
- Detail every trade
- Stick to your stops
- Never hold losers
Now, to understand the AI selloff we saw last week, you have to look at how institutional traders respond to short-term risk.
Remember, they’re trading other people’s money, and they’re leveraged. So, they have no choice but to weigh all risks, including midterms.
Election Risk for the AI Trade
I’m not bringing partisan politics into the discussion … this is just reality. And as a trader, it is your duty to understand exactly what’s happening.
You could Google all 100 senators and see where they align. There’s obviously going to be a little bit of overlap, but there’s a very clear delineation.
You will find that Democrats are very aggressively looking to regulate and slow down AI. They are anti-data centers. They want to nerf AI.
On the other side of the aisle, the sentiment is more like “let them do what they want.”
So, on the one hand, we have hedge fund traders. On the other hand, we have the risk the election poses to the AI trade.
Now let’s put those two things together…
De-Risking the AI Trade
Even though most of these hedge funds and big investors are bullish AI, they have to act accordingly.
It wasn’t long ago that most of these AI stocks were at all-time highs. The hedge funds are in the green, but the election could go either way.
Even those who are extremely bullish on AI are de-risking before an election that could sink or swim the sector.
If the market or election goes pro-AI, they can just buy the stocks back.
Now, there’s a lesson here that applies to day trading.
My Take
You do NOT have to stay in positions you’re not comfortable with. I see people every day holding stocks that worry them. Maybe a trade is flirting with your stop, and you don’t know what to do.
Learn to think like the hedge fund manager. You can always sell it. Then, if it starts to flip bullish, you can buy it back.
Watchlist
Alaunos Therapeutics Inc. (NASDAQ: TCRT) popped last week on news it had acquired Velaris Therapeutics. It’s now a multiday runner that also made my weekend watchlist.
TCRT 5-day, 5-min candles, multiday runner
Yesterday (Oct. 19), TCRT based around $3 per share after multiple rejects at the Oracle Signal.
TCRT 10/19/26, 5-min candles, Oracle support and resistance
If TCRT breaks and holds over yesterday’s Oracle signal, I think it can test the major resistance at $3.75
On My Radar
- SpaceX (NASDAQ: SPCX) reports earnings today after the close
- Yesterday, Elon announced that he’ll give one of his SpaceX shares to every kid in America next year
- Last man standing: thanks in part to its own doom-and-gloom narrative, Anthropic could be 2026’s final mega IPO (maybe that was the plan?)
- The Pentagon has earmarked $1.1B to expand low-cost drone manufacturing