What a rough end to October.

The Nasdaq 100 fell 3.5% after being down nearly 5% earlier in the day, while the S&P 500 dropped 1.8%, its worst day since June.

And once again, AI stocks took the biggest hit.

For a long time, investors were happy to buy almost anything related to AI. Stocks kept going higher, companies kept spending more, and everyone was making money.

Unfortunately, that’s not longer the case right now.

Stocks that used to rally on almost any good news are now struggling, even when companies report strong results. And when they miss like Google and Amazon, they get completely annihilated.

So, far this has probably be the worst earnings season in a while. And there is no reason to aggressive. And more time for caution Especially with the US midterm elections and more earnings reports coming up.

The S&P 500 just broke below a pretty important level right now. Things are starting to look a shaky. After moving sideways for almost 3 months, SPY has now fallen below its recent trading range and is trading under both its 21-day and 50-day moving averages. So, the short-term picture does not look promising at the moment. We're now at a point where buyers really need to start stepping in.

The Nasdaq looks a lot worse here.

Unlike the S&P 500, the Nasdaq has already broken down. It failed near the highs, lost its recent range, and is now sitting right on the 200d moving average. The selling has also picked up. That’s not a great look.

The 200-day moving average is a really important level right now. Buyers need to step in and defend it. A bounce from here would be a good sign, but a break below will likely lead to a much bigger correction in the Nasdaq.

October was a pretty wild month for the stock market.

Hedge funds reduced their positions more aggressively than at any point in the past 10 years, even more than during the tariff selloff in 2025. That's a huge amount of selling. And the reason why the selloff has been so swift for many AI stocks.

Even strong earnings aren't enough to keep some stocks from falling right now.

Just look at Caterpillar.

The company reported a 45% increase in earnings, 17% revenue growth, and a record backlog of $78 billion, nearly twice as much as last year. Yet the stock dropped 9.3% on Thursday, its worst day since the COVID crash, followed by another 3.8% decline on Friday.

Caterpillar has been one of the strongest stocks in the Dow this year, partly thanks to growing demand for power equipment used in AI data centers.

But after such a massive rally, expectations have become extremely high. Even great results can disappoint investors when a lot of future growth is already priced in.

And that's something we're seeing more often across the market.

We're also starting to see some weakness in financial stocks.

Banks have been falling behind consumer staples for several weeks now, and that's something worth paying attention to.

When investors feel good about the economy, bank stocks tend to do well. But when they start getting worried, they often move toward safer parts of the market, like consumer staples.

With the S&P 500 moving sideways for months, this is another sign that investors are becoming more cautious.

Historically, we're entering one of the strongest periods of the year for stocks.

Going back to 1950, November has been the best month for the S&P 500 on average, while November through January has been the strongest 3-month stretch. During those 3 months, the S&P 500 has gained an average of 4.4%, while the Nasdaq has risen 6.1%.

Of course, history doesn't guarantee that stocks will go higher this time. But with sentiment already so negative, it'll be interesting to see whether the market follows its usual seasonal pattern.

One of the biggest events of the year is here.

The US midterm elections are taking place on November 3.

And prediction markets are showing some interesting numbers.

Traders are pricing in roughly a 77% chance of Democrats winning both the House and Senate, an 18% chance of a Democratic House and Republican Senate, and a 5% chance of Republicans winning both.

Historically, the market has performed well in the months following midterm elections, regardless of which party wins.

The main reason is that investors don't like uncertainty. For months, the market has been dealing with political tensions, the war in Iran, and questions about what comes next.

The elections will finally remove some of that uncertainty.

So, with the US midterm elections taking place on Tuesday, there's another interesting historical data point worth looking at.

Since 1950, the S&P 500 has been higher 6 months after every single midterm election. That's 19 out of 19 times. The median return over those 6 months was 16.9%, regardless of which party won control of Congress.

But that doesn't mean stocks went straight up. In 2018, the S&P 500 fell nearly 15% after the election before eventually recovering.

So historically, the calendar is on our side.

But there's something interesting happening this year. Stocks usually tend to move higher heading into the midterm elections, but this time we're seeing the opposite. The Nasdaq just finished its worst month since March 2025, with tech and AI stocks taking some of the biggest hits. It shows just how nervous investors have become.

We’re heading into one of the most important weeks for the market in quite some time.

The midterms, a massive slate of earnings, Anthropic’s IPO and of course, the ongoing situation with Iran. There’s no shortage of potential catalysts. The question is whether any of them will be enough to change the direction of the market.

Because the damage beneath the surface has been significant.

Many of the biggest winners of the AI trade have been cut in half. Positioning has been reduced at a historic pace, short interest is surging, and sentiment continues to deteriorate.

Yet, despite all of that, the major indices are still holding up relatively well, all things considered.

Something is going to give eventually.

Either the indices start moving lower and catch down to the stocks that have already been crushed, or individual stocks begin to recover and catch up to the indices, which could eventually push the broader market higher.

I continue to strongly believe we're experiencing a correction within a larger bull market rather than the beginning of a prolonged bear market.

Just zoom out for a moment.

Remember how awful April 2025 felt? The Nasdaq fell roughly 25%, sentiment collapsed, and it felt like the market was falling apart. Yet that wasn't the end of the bull market. We recovered and went on to make new highs.

The historical seasonality we're entering, the upcoming midterms, and the sheer amount of selling we've already experienced all give me reasons to remain open to the possibility that the worst is already behind us.

Think about it.

If the worst is still ahead of us, we could be looking at another 10% downside in the Nasdaq, bringing us close to the kind of correction we experienced in April 2025.

Is that possible? Of course. Anything is possible in the market.

But do I think it's the most likely outcome? No.

And remember, being optimistic doesn't mean blindly buying stocks as they keep falling and simply hoping for a bounce.

For months now, the default stance has had to be cautious.

And that caution has very little to do with my long-term outlook for AI or the broader market. I remain as bullish as ever on the opportunities ahead. But the price action simply hasn't given me enough reasons to become aggressive again.

There's a big difference between being bullish on the future and being willing to lose money while waiting for that future to arrive.

I also strongly believe the next major wave of market leaders will look quite different from the last.

The AI trade isn't going away anytime soon, but the easy money from blindly buying anything associated with AI is well behind us. The market is becoming far more selective, and many of the stocks that led the previous rally may struggle to regain their former leadership.

New leaders will emerge, as they always do, and there will be plenty of opportunities to capitalize on them once the environment improves.

For now, patience remains the name of the game.

The goal isn't to make a lot of money every single week or every single month. It's to survive the difficult environments with your capital intact so you're in a position to take full advantage of the good ones.

You can make your entire year in a matter of weeks or months when the conditions are right. We saw exactly that during the powerful rally from April through June 2025. But to capitalize on those opportunities, you first have to make it through the periods when the market isn't rewarding risk-taking.

There's no need to force trades, chase every bounce, or feel like you're missing out simply because you're sitting on the sidelines.

Better times will come. They always have.

And when they do, what matters most is having both the capital and the conviction to take full advantage of them.