Beyond the technical selloff, a deeper issue is weighing on the market: a collapse in liquidity. Goldman Sachs reported a 65% drop in top-of-book liquidity for the S&P 500 over the past two weeks, making it increasingly difficult for large trades to execute without excessive price slippage. This thinning liquidity has fueled dramatic swings in stock prices, leaving traders reluctant to buy into weakness. Put plainly, there aren't enough buyers.
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Long-only funds, once a stabilizing force, turned into aggressive net sellers last week, recording their largest selling skew since the 2022 market correction. Meanwhile, sentiment indicators are flashing red—AAII’s bearish sentiment reading hit its fourth-highest level in 30 years, a level historically associated with market bottoms or steeper corrections. Hedge funds have reduced exposure to the “Magnificent Seven” tech stocks, and short interest is climbing across the S&P 500, signaling an increasingly defensive stance.
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With liquidity constraints and institutional caution dominating, traders are looking to Pi Day (March 14th) as a potential market inflection point based on historical seasonal trends. However, without a clear macro catalyst, the risk of continued downside remains high. For now, markets appear stuck in a defensive posture, waiting for a stronger bid to emerge before a sustainable recovery can take shape.

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