America’s mighty mega-caps were under siege on Wall Street mid-week.

The Nasdaq 100 was down nearly 3% into the US afternoon on Wednesday, with the biggest and most important names on the planet suffering disproportionately. Nvidia, for example, was 6% lower.

A big part of the problem was geopolitics. Reports indicated the Biden administration’s mulling “draconian” measures to curb China’s access to advanced chip equipment, while Donald Trump suggested he may charge Taiwan for security guarantees in a hypothetical second term.

Beyond geopolitics, the rotation to small-caps and other manifestations of beaten down cyclicality which began late last week appeared to reach a tipping point.

Although the initial catalyst for the multi-session surge in the Russell 2000 was the July 11 CPI release (and specifically the read-through of another benign inflation update for Fed policy), the rather momentous scale of the Russell 2000’s four-session outperformance versus big-tech was indicative of a squeeze, not some en masse fundamental macro rethink.

As I put it in a comment earlier this week, “a lot of it was short covering / short legs unwinding [and] once it started moving in the ‘wrong’ direction, it was probably just brutal.”

Well, Wednesday’s adverse price action in consensus longs (with NDX as a lazy proxy) suggested the brutality of the short book reversal might’ve “metastasized into a larger de-gross or momentum shock,” Nomura’s Charlie McElligott wrote.

Have a look at the figure below. It’s the distribution of six-day rolling relative performance for US small-caps versus big-tech going back… well, going back a helluva long time.

In four decades, there’s basically no precedent for the last several sessions.

Consensus longs (i.e., your mega-caps, your AI plays, etc.) held up ok in recent days even as shorts “exploded.” On Wednesday, though, the short squeeze bled into those longs.

“Longs are finally cracking a bit now,” McElligott went on, describing a “‘VaR-down’ driven by the crowding problems in short books now spilling into long selling.”