For over a month, I have written and talked about a de facto bear market with the epicenter being the artificial intelligence (AI) trade. Interestingly, while the individual stock “fear index” is far more elevated than the Volatility Index (VIX), it's nowhere near what it was this past summer.

What’s happening, however, is that the AI meltdown has shifted into panic reflected in large-cap momentum and growth factors.

The “Mag Seven” was holding up nicely, but all of a sudden it's riddled with bona fide, significant pullbacks from 52-week highs. That said, it's too soon to force the issue beyond trading bounces. I do see huge opportunities downstream, where trillions of hyperscalers' cash is flowing, including chips.

I’m also curious about software (IGV) and the return of the software-as-a-service (SaaS) Apocalypse – several big names report this week.

The midterms could be an inflection point this week.

Today’s Session

The rumored acquisition of Lumentum (LITE) is happening, with Marvell (MRVL) agreeing to buy the company for $115 billion.  Lumentum’s market cap is $76 billion, but the stock is opening lower as the all-stock deal is pegged at a 4.5-to-1 ratio of MRVL to LITE, not a fixed $115 billion.

I thought LITE would demand a higher offering price and a better deal structure.

Meanwhile, the Semiconductor Index (SOX) starts the session right at the 200-day moving average but needs to first close above the 50-day (11,867) and then above 13,000 to reverse the emerging pattern of lower lows and highs.

It's good to see bargain hunters out and about but not enough to force the issue. Everyone must have some cash now, as there are great undervalued names, but behavioral aspects of the market still trump fundamentals and technicals.