We are gathered here today to mourn the Situational Awareness hedge fund, taken from us far too soon at the tender age of *checks notes*… 18 months.

It is survived by one very expensive lesson about leverage.

For those who didn't know the deceased…

Situational Awareness was the $20 billion brainchild of Leopold Aschenbrenner, the 25-year-old AI wunderkind who walked out of OpenAI, published a manifesto, and convinced the smart money that he'd seen the future.

And for a while, he had.

His fund piled into chips, memory, and energy infrastructure — the picks and shovels of the AI gold rush — and rode them to gains that got him anointed the next Warren Buffett before he could legally rent a car without a surcharge.

Then July happened.

As the memory stocks cracked and the semis went into freefall, reports started trickling in Thursday that a huge institutional seller was dumping shares into the chaos.

Plot twist: it was our boy Leo, caught offsides with highly leveraged bets on the chips while simultaneously shorting the newly resurgent software names.

Double-wrong… on margin.

By midday, Ken Griffin's Citadel had swooped in to buy the fund's entire public book at fire-sale prices, and Leo quietly exited the public markets to go "spend time with his thesis."

Look, I'm a trader. Being wrong is part of the game.

I'm wrong all the time. It sucks, but you get used to it.

Being double-wrong is a bummer. And being double-wrong on leverage after the media crowned you the second coming of Buffett?

That's the kind of thing they put on your tombstone.

Don't shed too many tears, though. I'm sure Leo lands on his feet. His swift retreat just gives him time to lick his wounds and plot his next act.

The rest of us don't have a Citadel bid coming to bail us out.

So while the speculators are busy dancing on the grave — "the forced seller's gone, the bottom's in!" — let's do something more useful.

It’s time to figure out what the chip charts are actually telling us, so you don't end up writing your own portfolio's eulogy.

Start With the Big Picture

To understand what’s going on with the semiconductors, we need to acknowledge just how powerful this year’s rally has been and how unusual these moves really are.

Semiconductors (specifically the memory trade) have produced generational gains for investors over the past several months.

Micron Technology Inc. (MU) has gained nearly 700% over the past 12 months. Sandisk Corp. (SNDK) is up an eye-popping 2,700% over the same timeframe.

Korea’s KOSPI, which is disproportionately weighted toward just a handful of chip names, has more than doubled year-to-date, despite the fact that it has dropped as much as 40% from its June highs!

Next, we need to understand the emotional weight that comes with huge price moves.

Prices aren’t just numbers. There are emotions involved. SNDK ran from the $550s to over $2,300 in less than three months.

But hitting $1,200 on the way up back in early May feels a lot different than tumbling 50% from its highs to hit $1,200 this morning. Context matters!

Speculators are all hot and bothered over the Situational Awareness implosion. They’re hoping that the worst is over now that Leo liquidated. That’s one of the reasons why the chips enjoyed such a strong bounce yesterday.

But hope is not a strategy.

How Do I Know It’s Safe to Buy?

I’m not here to call a top or make any bold macroeconomic predictions. But I can tell you that I do not want to rush back to buy into these chip stocks following a volatile July session.

It’s clear from Thursday’s action that the speculators think they can bully these stocks back to their highs.

Their brains are stuck on the same program that was running earlier this year: buy these stocks at any price, and they will only go up.

But the damage is done for now. We have a short-term downtrend on our hands following the July swoon. And until we see a convincing breakout, we have to respect this series of lower highs and lower lows.

Using MU as an example, I’d want to see the stock convincingly retake $1,000 before even thinking about a trade on the long side.

It’s clear that the spring/early summer momentum move is over and needs to reset. That will take time.

Every stock that logs a sharp, multi-month rally needs time to digest the move when momentum finally fades. Don’t rush it!

Leave the Fundamentals At Home

Many speculators are going to attempt to lean on fundamentals as they convince themselves to immediately re-enter or double-down on their trades.

They aren’t wrong about the numbers, of course. These growth stories are impressive, and it’s easy to make an argument that many of these stocks remain cheap despite their huge rallies this year.

But these numbers aren’t what’s driving the market right now. 

I’m not saying that fundamentals don’t matter. They certainly are important for the long-term health of any business and, subsequently, its stock price.

But after a huge rally followed by a fast correction of 25%, 35% or even 50%, emotions and herd mentality are driving the price action.

Time is the cure for these runaway animal spirits.

These stocks will find a floor eventually. Then, they will chop along in wide ranges. The “hot money” will move to the next exciting play. Shareholder turnover will help bleed off the last bit of excess enthusiasm.

Eventually, the stocks will set back up again for another run.

You won’t catch the exact lows.

But you’ll be in a much better place than traders who will inevitably tie up their capital in a former momentum leader that goes nowhere but sideways to down for months, dreaming about fast profits that never materialize.