UBS Trading Desk: Momentum Stock Selloff Nearing End, Recommends Gradual Buying
N.R. Finch
UBS's trading desk sees the momentum sell-off approaching its end, with hedge funds cutting roughly 5% of long exposure in momentum and semiconductor names — one of the largest unwinds on record — and recommends scaling back into AI positions gradually.
How much have hedge funds cut?
UBS prime brokerage data show hedge funds trimmed momentum and semiconductor longs by roughly 5% of gross market value — one of the largest reductions on record.
Net positioning in semis and software has fallen back to April levels. This means → three months of accumulated buying was nearly wiped out in a single unwind.
In plain terms = the most crowded trades have been largely flushed; positioning is back to "not heavy."
Why does UBS say it's time to start buying?
Michael Romano, UBS head of hedge-fund equity derivatives sales, wrote: "Momentum de-risking is and remains a high-conviction call — scaling in is the prudent move."
He cites two reasons: AI fundamentals continue to improve, providing a buy-the-dip signal; and current positioning has de-compressed enough to support a rebound.
UBS's momentum basket includes Sandisk, Broadcom, Oracle, KKR, Datadog, and Microsoft. This means → UBS is betting on the full AI supply chain, not a single name.
When does the sell-off bottom?
Romano expects the momentum deleveraging to trough by end of July — if it hasn't already.
The key supporting signal: UBS's momentum indicator staged a dramatic intraday reversal last Friday — swinging from down 3.5% to up 2.5% within two hours.
In plain terms = sellers exhausted themselves mid-session and buyers stepped in fast — a pattern that typically marks the tail end of a liquidation.
Who gets hurt on the other side of the rotation?
UBS prime data show that recent buying in banks, industrials, and other cyclicals was mostly short covering, not fresh longs.
This means → once capital rotates back toward AI names, those cyclical sectors lack genuine long support and could pull back.
UBS's software basket has rallied roughly 20% since late June. This reflects extreme sensitivity to positioning shifts — what runs up fast on flows can reverse just as quickly.
What happens if the turn actually comes?
Romano wrote: "When the tide turns, I expect a liquidity air pocket to the upside."
In plain terms = once the sell-off ends and capital swings back, sellers will already be done — buyers will find little supply on the offer, driving prices sharply higher.
End of July is the key checkpoint: whether the momentum deleveraging wraps up on schedule will determine the timing and force of any rebound.
Content is for reference only, not financial advice.