When Crowded Trades, Leverage and “WMD” ETFs Collide

Four lessons from one of the wildest weeks of 2026

FROM ELECTION RALLY TO TECHNOLOGY ROUT

Welcome back to Stock Talk. Last week gave investors a five-day lesson in why price, leverage and risk are three very different things.We started the week already nervous about AI. Then came the midterm elections.

Wednesday, the uncertainty disappeared-and stocks exploded higher. The Dow jumped by 3%, or more than 1,500 points. The S&P 500 gained 1.6%. Oil collapsed -9%, taking pressure off inflation and interest rates. For about 24 hours, everything looked great. Then Thursday arrived. And Wall Street went from celebration-to liquidation.

The S&P 500 fell -4.4%, its worst day since the April 2025 tariff panic. The Nasdaq fell -5.5%. The Nasdaq 100 dropped more than -6%. And semiconductors? The SOX plunged -12% in ONE DAY. Nvidia fell more than -9%. AI stocks were hammered. Data-center stocks were hammered. And nearly $3 trillion of S&P 500 market value disappeared.

So today’s Stock Talk has four lessons. One: What actually happened last week? Two: Why leverage and crowded hedge-fund positions can turn selling into forced liquidation. Three: Why 2X and 3X single-stock ETFs may be appropriate trading tools-but for long-term investors, I call them financial WMDs: Weapons of Mass Destruction. And four: Why this has a very uncomfortable similarity to the final stages of the dot-com cycle.

POINT ONE – AI DIDN’T JUST SELL OFF. THE MARKET QUESTIONED THE BUILDOUT

The first mistake would be saying: ‘The election caused stocks to fall.’ It’s more complicated than that.

Wednesday’s election rally actually showed broad relief. But underneath the rally, investors were already worried about something very specific: Data centers. Some newly elected officials had campaigned on slowing or regulating data-center construction. UBS estimates roughly 30% of expected 2028 data-center additions could face risk of delay.

And that matters because today’s AI investment chain looks like this: Data centers -> Electricity -> GPUs and memory -> Networking -> Cooling -> Power equipment -> AI earnings. If you slow the first item-the market immediately questions everything underneath it. That’s exactly what happened Thursday.

Technology fell more than -7%. Semiconductors collapsed. The Nasdaq broke below its 200-day moving average. The SOX fell to a six-month low. And the Nasdaq entered an official correction, -12% below its October record. But then Friday-chips bounced. The SOX gained 4.2%. AMD gained 11%. Intel 8%. Nvidia  3%. For the full week, the S&P still lost -2.7% and the Nasdaq lost -3.4%. That’s not normal volatility. And that takes us to point two.

POINT TWO – WHEN EVERYONE OWNS THE SAME THING, YOUR RISK IS THEIR LEVERAGE

Here’s one of the most important lessons for long-term investors. You may own a stock with no leverage whatsoever. But that doesn’t mean you’re protected from other people’s use of leverage.

Why? Because somebody else may own your stock-with borrowed money. And when that investor gets a margin call, they don’t sell what they want to sell. They sell what they can sell. Thursday contained exactly that kind of behavior. Reports indicate hedge funds unwound positions at the fastest pace in more than a decade, while retail investors had their heaviest selling day since the pandemic.

Look at what fell together: Unprofitable technology. Quantum computing. AI. Memory. High-beta momentum. And heavily shorted technology stocks. That pattern is consistent with investors cutting portfolios, not calmly deciding that every company’s long-term earnings suddenly changed Thursday morning.

VOLATILITY BECAME THE ACCELERANT

The VIX jumped 69% Thursday and traded above 28, its highest level since March. Think of volatility like gasoline around leverage. When volatility rises, many professional portfolios must reduce risk. They sell stocks. Stocks fall. Volatility rises. They must reduce more risk. More selling. Higher volatility. More deleveraging. More generically think about waiting until a storm is hitting your house and getting on the phone and trying to buy insurance on the storm you are already in.  It will be prohibitively expensive

This is why diversification isn’t simply about owning 20 different stock symbols. If all 20 stocks depend on the same AI capex cycle-you may really own one trade 20 different ways. For retirees, that’s an important distinction.

POINT THREE – LEVERAGED ETFs: FINANCIAL WMDs FOR INVESTORS

Now I want to spend a few minutes on something I think deserves much more attention. Leveraged single-stock ETFs. These products promise things like: 2X Intel. Or even: 3X Intel. That sounds simple. Intel goes up 10%. You make 20% or 30%. Right? Not exactly.

Because these funds generally promise two or three times the DAILY return. Not the weekly return. Not the monthly return. And definitely not the long-term return. Direxion explicitly says its 2X Intel ETF seeks 200% of Intel’s DAILY performance and warns that longer holding periods and higher volatility increase the effects of compounding. GraniteShares says its own 2X Intel product is intended as a short-term trading vehicle and should not be expected to deliver twice Intel’s cumulative return over periods longer than one day.

The prospectus for a 3X Intel product goes even further: An investor should be prepared to lose the entire investment. Those aren’t my warnings. Those come from the products themselves.

INTEL JUST GAVE US A REAL-LIFE EXAMPLE

Intel finished October 30 at $65.76. One week later: $56.28. That’s a weekly loss of -14.4%. But the path was violent. Monday: -8.8%. Wednesday: -3.8%. Thursday: -10.3%. Then Friday: +7.7%. Now look at the 2X version.

GraniteShares’ INTW, a 2X long Intel daily ETF, went from $7.49 to $5.37. That’s approximately -28.3%. Almost twice Intel’s loss-but not exactly. And on Thursday alone, when Intel fell 10.3%, INTW fell approximately 21%. Now look at the 3X product. The Leverage Shares 3X Long Intel ETP, INT3, fell from $17.45 on October 30 to $10.15 on November 6. That’s approximately -41.8%.

One week. Intel: -14.4%. 2X Intel: -28.3%. 3X Intel: -41.8%.And here’s the part investors often miss. After losing 42%, you don’t need a 42% gain to recover. You need roughly 72%. That’s the mathematics of losses.

WHY I CALL THESE WMDs

For sophisticated traders who understand daily resets, derivatives, compounding and volatility-leveraged ETFs can be trading tools. But the number of people who need and understand these vehicles is small in my book. That’s different from investing. For a retiree buying a 3X single-stock ETF and holding it because: ‘I really like Intel…’ I would describe that behavior much differently. That’s not increasing your conviction. You’re increasing your path dependency.

And volatility decay can work against you even if you’re eventually right about the stock. GraniteShares provides a stunning historical example.From its 2X Intel ETF’s February 2025 launch through June 30, 2025, Intel itself gained 0.62%. What did the 2X Intel ETF return? -20.84%. Intel basically went nowhere. The supposedly ‘2X long Intel’ product lost more than one-fifth of its value. That’s volatility drag in the real world.

That’s why I call 2X and especially 3X single-stock ETFs: WMDs-Weapons of Mass Destruction for long-term investors. They’re trading instruments. Treating them like retirement investments turns investing into something much closer to gambling on a path of daily prices.

POINT FOUR – DOT-COM HAD THE SAME INGREDIENT: LEVERAGE + CONCENTRATION

Here’s where our dot-com comparison comes back. The technology may change. Human behavior doesn’t.

In late 1999 and early 2000, investors became convinced that Internet and telecom stocks were the only place they needed to be. Capital concentrated. Momentum attracted more momentum. Margin debt increased. Speculation increased. Then volatility increased.

And once prices started falling, leverage stopped helping returns-and started forcing selling.

Today’s AI leaders have far better earnings and cash flow than most dot-com companies. We’ve discussed that repeatedly on Stock Talk. That’s a major difference. But the similarity isn’t the companies. It’s investor behavior.Crowded positions. Leverage. Momentum. Fear of missing out. And increasingly exotic ways to multiply exposure to stocks that are already volatile. That’s where history rhymes.

THE MOST DANGEROUS STOCK MAY BE THE ONE EVERYONE LOVES

Thursday gave us an important lesson. A company doesn’t need to report bad earnings for its stock to collapse.Sometimes the problem isn’t the company. It’s the ownership structure around the company.

If too many investors own the same trade… If hedge funds are leveraged… If volatility-control strategies must sell… If options dealers need to hedge… And if retail investors own 2X and 3X versions of the same stock… a 5% fundamental change can produce a 15%, 20% or 30% market reaction.

That’s why diversification matters most before you think you need it.

FOUR LESSONS FROM ONE CRAZY WEEK

So here are my four takeaways. One: Thursday’s AI collapse was serious, but Friday’s rebound tells us this is not yet proof that the AI earnings cycle has broken.Two: The VIX jumping 69% and the extraordinary hedge-fund deleveraging remind us that your stock can be affected by someone else’s leverage.Three: A 2X or 3X single-stock ETF is not simply ‘more of a good company.’ It’s a daily leveraged trading instrument whose mathematics can work against a long-term investor.And four: That’s where the dot-com lesson matters.

The Internet was real. AI is real. But a revolutionary technology does not make every price, every position-or every leveraged product-a good investment.So when markets get wild, don’t ask: ‘How do I make my winner bigger?’Ask: ‘What happens to my portfolio if everybody heads for the exit at the same time?’

Because Thursday reminded us: Leverage feels wonderful on the way up.It’s the trip down where you discover who actually owns the risk.

“AI may or may not become another dot-com bubble. But leverage has already shown us something that has not changed since 2000: when everybody owns the same trade, the exit door never gets any wider.”