Category Archives for Articles
AI Reckoning
What a week! Big tech stocks got hit hard this week after earnings from Microsoft (MSFT), Alphabet (GOOGL), and Amazon (AMZN). While chips got wrecked by Intel (INTC). And the fun continues next week with more big earnings. Let’s dig in. Skip Ahead! Big Earnings DisappointmentsMAG7 No More?Election Day Is Upon UsSentiment Still SucksHawkish Fed Reigns Big Earnings DisappointmentsWe previously labeled this week the “Super Bowl of Trading”. And it was a doozy. It was the busiest week of earnings season with giants like SanDisk (SNDK), Alphabet (GOOGL), Microsoft (MSFT), Amazon (AMZN), Visa (V), GE Vernova (GEV), Intel (INTC), and plenty of other key names reporting. And it was a bit of a bloodbath. It was the worst day in GOOGL history. The company lost half a trillion dollars in market cap in one day. Then INTC got crushed on weak guidance. AMZN missed.And even beats from MSFTand SNDK weren’t enough…Big tech companies aren’t getting the same grace anymore for big spending on AI. The earnings slump dragged down the broader market to end the week, with QQQ briefly breaking below the $686 support level. Many traders view that as the Bear/Bull line in the sand for this market. And the earnings craze isn’t slowing down. Next week is another packed calendar with Apple (AAPL), Palantir (PLTR), Advanced Micro Devices (AMD), Arm Holdings (ARM), Qualcomm (QCOM) and more! Take a look:MAG7 No More?It may be time to pick a new group of leaders. The current “Magnificent 7” – Apple (AAPL), Nvidia (NVDA), Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (META), Microsoft (MSFT), and Tesla (TSLA) – no longer trade as one big group. An analysis by CNBC calculated the rolling 60-day correlation of daily returns for each of the 21 unique pairs among the group. The average of those correlations has fallen to the lowest level in more than a decade:Analysts say that deviation is due to each company’s different exposure to AI. And since AI has been the trade of the year, the Mag 7 has been lagging as a group in 2026.As of Friday, SPX is up over 10% YTD while MAGS is up just 3.5%:Election Day Is Upon UsThe start of this Q4 has been marked by fear as traders await Election Day. But that uncertainty will clear up this week. The balance of power in Congress is up for grabs in the midterm elections on Tuesday, November 3. And history shows the market should rally no matter who wins. An analysis by Schwab found the S&P 500 has averaged a 5.7% return in the three months right after a midterm election since 1974. 11 of the 13 years in that analysis had positive returns. And in the six months following the midterms, SPX saw a positive return in all 13 years, averaging 12.4%. Markets don’t like uncertainty and getting past Election Day relieves a lot of uncertainty for traders.Sentiment Still SucksThe latest AAII Sentiment Survey shows that 37.8% of investors are bullish.That’s in-line with the long-term average of 37.5%. And it’s the fourth straight week of neutral-ish sentiment. Plus, CNN’s Fear & Greed Index is at just 24/100, indicating Extreme Fear.Will the joy ever return?Hawkish Fed ReignsThe Federal Reserve kept rates unchanged at this week’s meeting, as expected. But it was a hawkish pause as policy makers raised concerns about inflation. The 10-2 decision saw two members vote for a 25 basis point hike: Governor Lisa Cook and Cleveland Fed President Beth Hammack. The Central Bank didn’t clearly layout plans for their next hike but 71.6% of traders are now betting on a hike at the December meeting. Fed Chair Kevin Warsh didn’t provide much clarity during his press conference, saying growth is strong and inflation is too high. He said the Fed has shown both that it is ready to act and that it is willing to. But repeated that he doesn’t favor signaling the future path of rates through forward guidance. Warsh also announced the bank will hold fewer rate-setting meetings starting next year. In 2027, one of the eight meetings will focus just on strategy with no vote on rates. In 2028, two of the eight meetings will have no rate decision. Now focus turns to the October jobs report on Friday. A strong report will likely lock in chances of a December 9 rate hike while weak data may push the Fed to delay again.
Continue Reading -->One Big Win Is All You Need
Winning in the business of speculation, just like any game, requires success in two operations: offense and defense. There are times when you’ve got to attack and times when you’ve got to protect your turf. Sometimes offense is full of bold and exciting plays, but sometimes it’s a grueling battle of taking one yard at a time. Defense is always and at every time a true slog through the mud. Right now, for my style of trading, defense is the mode I’m in, and it is a crucial strategy to winning the game. The first part of this year was an all out offensive attack with big, aggressive plays that put up points in my account. Beginning in March, I was still on the offensive attack, but it became a one yard at a time fight to try to gain even a first down. Since August, I’ve been on the defensive. I’m trying to just keep what I’ve got without taking any serious losses. Defensive trading is different than playing defense in sports. For me, I’ve got to keep placing trades, which seems like an offensive posture, but I’m really just probing the market to see what’s working. At this late stage in the cycle the market is full of risk. I’ve described in detail all the metrics that back up my analysis. This market is not conducive to playing offense. We will get back to a market that is far more conducive to aggressive plays for wealth building, but this is not that market. In times like these, all I can do is prepare for when we do return to that type of market where I can play offensive aggressively and manage big positions on the long side. The things I’m looking for that let me know when we have returned to that type of market are very specific. When a market is full of stocks and sectors that show the setup I describe in the video, I know the odds are in my favor, and the market is in a low risk phase that can produce some big wins if I get into the right stocks. Reviewing my chart library is how I spend time during the trading day when I’m in defensive mode. I’ll always have some probing trades open in small size to get a feel for whether or not trades are working, but these trades are more of an upkeep activity to stay mental involved in the market. The setup I like shows a price and volume structure that indicates institutional money is buying a stock. When many of the stocks in the same sector show that setup, I know there’s a good chance I can win by buying breakouts. The key to growing an account is aggressive trading with concentrated positions, but holding big positions requires a low risk market. There is no way to speculate with any consistent results in a market that is full of risk like this one. For that reason, I’m spending my time now researching new trade ideas, reviewing past trades, and studying my chart library for nuances among different winning charts. One reason that reviewing past trades is so important is that action bolsters my confidence in difficult times. I’ve taken screen shots of my account when it was about to push through a big figure. Reviewing those pictures now reminds me of all the work it took to get here, and that it was the application of my skill that pushed my account into a higher range where it sits to this day. Every trader should be keeping track of their growth and development with screen shots as their account hits milestones. Reviewing your past success when times are tough is a great way to boost self confidence as a trader. Not seeing any real progress in my account for months now is tough. Without reminding myself that I do possess the skill to put up big numbers, I could easily fall into a negative mindset in a market like this. That’s the most dangerous place for a trader’s mind to wander. The next big opportunity to win could be developing right now, but without keeping a positive attitude, there will be no way to spot it. Staying positive is key. Making small, low risk, probing trades is essential until this market provides the conditions necessary for an aggressive play. I’ve been in about 75% cash since March, and without any big position on, it feels like I’m wasting my time. I know I’ve got to show up everyday at my monitors, put in the work, and stay vigilant, but it is tough when I don’t see my account pushing past all time highs. The only thing that helps alleviate the mental tension is to simply participate. I hunt for any opportunity I can find to just stay involved and participate in something that is working. I’ve got a small short in the DIA, a small long in the housing theme with WY, and a small long in pharmaceutical stocks like the XPH from last week that are all holding up well enough to stay in the trades. These trades are too small to make a difference in my account, but they are just big enough to keep my faculties alert. Keeping an alert mind while playing defense is critical in order to be prepared for the next low risk phase in the market. I was talking with a novice trader this week who was clearly wearing his mind out by following all manner of minutia that doesn’t matter in the big picture. What the Fed does or doesn’t do, whether or not this tech company makes earnings – none of that has ever helped me put up points on the board. Those things are just not critical to winning the game I’m playing. What matters is identifying low risk opportunities and positioning aggressively when they appear. Those opportunities are defined by the price and volume
Continue Reading -->The Super Bowl of Trading
ATTN: Inner Circle VIP week with David Prince starts Monday! Sign up here. What a week! AI stocks got smashed. Earnings “winners” like Meta (META), SpaceX (SPCX), and Bloom Energy (BE) got smashed. And yes, I got smashed too. Let’s dig in. Skip Ahead! Energy Beats AIAI: Is This As Good As It Gets?This Is the Super Bowl of Trading!This Market Is Short on JoyRate Hike Expectations – Subject to Change, As AlwaysREMINDER: Join Inner Circle Without the $7,000 Price Tag. Energy Beats AIAI was the place to be in 2026. Was… But this week, XLE overtook SMH at the top of our ETF leaderboard:As you can see, XLE is up 58.1% this year and 12.7% in October. And you know why: high oil prices because of the US-Iran and Russia-Ukraine conflicts. Look at how smooth this YTD XLE chart is:It’s almost like the stock market was telling us things would not quiet down any time soon.AI: Is This As Good As It Gets?The big question on Wall Street right now is “Why can’t AI stocks rally when all the news is good?” Every 5 minutes, I see another supposedly bullish AI data point. This week, we saw: -Huge AI-driven earnings from Western Digital (WDC) and Bloom Energy (BE).-Massive data center revenue growth from Texas Instruments (TXN)-Nebius Group (NBIS) said it could sell out its 2027 compute capacity immediately. But I suspect beneath the surface, the market is asking this question: “What if this is as good as it gets?”Because we keep hearing from company after company that they can’t meet demand out multiple years. We all know AI leaders like SanDisk (SNDK) and Lumentum (LITE) will just keep on crushing estimates. So what’s left in the way of positive surprises? I say this as someone who own plenty of AI stocks including SanDisk, Western Digital, Marvell (MRVL), and even that Godforsaken Cerebras (CBRS). The good news is, we’re about to enter a monster tech earnings week with plenty of AI names reporting. We’ll see if the market is finally ready to reward good news. Or, if valuations have simply come in enough to attract dip buyers. Gonna be exciting!This Is the Super Bowl of Trading!Don’t ask “what’s happening next week?” Ask “what’s not happening next week?” We have the FOMC rate decision, PCE Price Index, and GDP report. And it’s the busiest week of earnings season with giants like SanDisk (SNDK), Alphabet (GOOGL), Microsoft (MSFT), Amazon (AMZN), Visa (V), GE Vernova (GEV), Intel (INTC), and plenty of other key names reporting. Analysts are forecasting 29.5% growth for Q3, according to FactSet. And given how many stocks have been getting hit even after good reports, it feels like expectations are sky-high. Because everyone’s looking for excuses to sell. As for the AI trade, the market wants two things: -Across-the-board beats and strong guidance-Capex increases from the likes of GOOGL, MSFT, AMZN, etc.This Market Is Short on JoyThe latest AAII Sentiment Survey shows that 36.9% of investors are bullish.That’s in-line with the long-term average of 37.5%. And it’s the third straight week of neutral-ish sentiment. Plus, CNN’s Fear & Greed Index is at just 20/100, indicating Extreme Fear.So this market is still short on joyous participants. Though I’m sure you knew that, based on how many stocks are beaten down.Rate Hike Expectations – Subject to Change, As AlwaysThe next FOMC meeting is October 28, and it looks like a rate hike is off the table, according to the CME’s FedWatch Tool. The market is pricing in a mere 10.5% chance of a 25 bp rate hike, down from 70.9% a month ago.And the market expects an 78.4% chance of at least one hike by year-end, a slight decline from last week.REMINDER: Join Inner Circle Without the $7,000 Price Tag. Next week is Inner Circle VIP week. As noted above, this is the Super Bowl of trading. And you get free access to our most expensive trading room. Join the squad here.
Continue Reading -->Finding A Home In The Range
Looks like the consummate professionals on Wall St. have pulled off yet another masterpiece. They were able to cobble together the bullish conditions necessary for the upcoming Anthropic IPO. Back in July, I suggested that the pros on the Street would stop at nothing to get a series of successful IPOs out the door. It appears as though they will overcome all the odds against them and foment demand for another block buster stock offering. The successful IPO of one of the big, household name AI companies was always the key ending to this AI story. Wall Street must show that it can create a successful narrative that sells financial assets. Even after this credit cycle finally ends, the business owners of the world will remember that Wall St. banks can still sell merchandise no matter how dire the conditions. The financial conditions are dire under the surface regardless of what the index levels say. Capital is getting scarce, and the most marginal users of that capital are getting priced out. Some of the business models that depended on 3% rates to operate will be gone within the next year. Other than the biggest player in the space, Ares Capital, all the private credit names are down for the count. The chart of Blue Owl, OBDC, is representative of most of the names in the space. OBDC: These marginal users of capital, the junk bond spreads, and consumer sentiment all tell the truth better than a stock price index like the SPX. The truth is that this business cycle is ending, and we’re already in the contraction phase. But just because the signs are now obvious that the economy is contracting due to higher costs of credit, it doesn’t mean the SPX has to play along and go down. Because it’s imperative for Wall St to get an AI IPO out the door, they will move mountains to create the conditions required for a successful IPO. The first condition is that stock prices don’t decline. Stocks don’t have to go up necessarily, but they mustn’t break down. Below is a chart of the SPX with two particular days annotated. The first is August 4, the day when the number of traded call options on the SPX reached 4 million, an all time high. You can see that the index’s upward thrust was halted. The second day annotated is this week, Oct 19, when an all time high for put volume traded. It would be safe to assume that, just as record call trading halted upward acceleration, any downward acceleration in price has now been taken off the table with a massive open put position. SPX Rangebound: And just like that, an October crash is likely averted. With so much open interest in options with calls defining the top of the range and puts defining the bottom, the market is likely stuck in a range for some time. This is a market that is in balance between buyers and sellers. We’re going to need something unexpected to force the market into an imbalance where it can trend. Until that something occurs, I’m going to try to stay in the game by sizing down, buying weakness, and selling strength. That’s the opposite of what I’d look to do in a trending market where buying strength in breakout trades has a higher probability of working. The type of stocks I’ll look to buy will change as well as the market trades in a range waiting for one side to gain the upper hand. I’ll be looking to bid for stocks that fit with the contraction phase theme. That would be the defensive sectors like medicine stocks. TEVA, BIIB, AUPH, MRK, LLY and JNJ all have the right looking setups, and they all fit in with what the XPH Pharmaceutical ETF is doing. The XPH is holding at the 200 day moving average around $61 and has a low risk stop just below. XPH Trade Plan: This contraction phase should offer some very good opportunities to pick up long term assets that will pay us to own them. Those assets will have to offer better than the 5% we can get with Treasury Bills. That is a hard hurdle to jump over, so stock prices will have to come down significantly. Stocks are a speculative asset, and as such, we shouldn’t even think about owning them unless there is a sufficient margin of safety with a cheap price. Stocks this expensive are for renting only. The last time there was a glaring opportunity to buy long term assets was in 2023 when gold mining stocks were in the doldrums, and central banks were buying gold every month. The price had to rise over $2,000 at some point, but nobody wanted to wait in gold mining stocks at the time. They were a screaming buy. Before that, the opportunity to pick up long term assets was when crude oil crashed in March of 2020. Energy stocks were hated, ESG was all the rage, and because of that, big institutions were underweight energy stocks. The decline in March 2020 was the final leg down that offered patient buyers tremendous assets at discount values to park away in long term ownership. I had held EPD for a long time, but never got the chance to get a big position until March 2020. We will get the opportunity to pick up a left-for-dead sector once again, and indeed, it may already be here for one sector in particular. The housing related stocks have been killed since the 2021 real estate boom ended. After this contraction phase runs its course, the early expansion phase should send housing stocks much higher. I’m looking at names that are tangentially related to housing like WY, WHR, SHW, FND, SWK, ETD, and MHK. These stocks are getting cheap, and a couple are already priced for a severe depression. They’re not out of the woods yet, as we haven’t gotten through the worst
Continue Reading -->Did Michael Dell Say Buy Micron?
ATTN: Sami Abusaad and James Rich Young’s Pristine Mentorship starts soon. Check it out here.What a week! Elon Musk showed us a flying car. Inflation came in hot. And my portfolio got smoked. But… Michael Dell might have handed us a big new idea. Let’s dig in. Skip Ahead! Red October for TechDid Michael Dell Tell Us to Buy Micron?Earning Season Is Going Okay, But Could Be About to Go BOOMMeta Is Key to AISentiment Is NeutralRate Hike Expectations Subject to ChangeREMINDER: Join the Mentorship Red October for TechIt’s been a rough month for tech. QQQ is down 4.1%, while SPY is down just 0.1%. Meanwhile, DIA is up 1.9%. But bizarrely, every S&P sector is up aside from Tech and Communications.And Communications might as well be tech because it includes names like Meta (META) and Alphabet (GOOGL). If we did deeper into the QQQ’s, 55 of 101 names are up in October. Sounds decent. But the average winner is up 6.3%, while the average decliner is down 11.1%. That’s because the decliners list is dominated by beaten-up AI names like SanDisk (SNDK), Nebius Group (NBIS), and CoreWeave (CRWV). Speaking of beaten-up AI names…Did Michael Dell Tell Us to Buy Micron?A Friday Wall Street Journal article about Dell (DELL) included an interesting little nugget from company founder Michael Dell. When speaking about the memory supply crunch, he said “It’s gonna get worse.” Was he telling us to look at Micron (MU), which is trading at 5x forward earnings?Supply shortages favor sellers like Micron. And the longer the shortage, the better for Micron. However, it’s not easy to feel confident when the AI trade is taking the elevator down… Our own JR Romero is a big Micron fan. Here’s why:Earning Season Is Going Okay, But Could Be About to Go BOOMAccording to FactSet, 9% of the S&P 500 has reported earnings. 84% of companies have beaten estimates. However, Q3 earnings are now tracking to grow by 29.0%, slightly below the 29.4% expected last week. This is because earnings beats are smaller than expected, and are being offset by lower estimates in the Health Care sector. However, we are about to get a bunch of big tech earnings reports which have the potential to shift sentiment. Starting with…Meta Is Key to AIEarnings season heats up big time next week, especially in tech. Meta (META) is the biggie, especially when it comes to AI. The market is desperate for reassurance that AI infrastructure spending can keep growing. Because that spending has been key to earnings growth. So consider Meta’s capex guidance a major market catalyst. The higher, the better. (duh) Yes, we have important companies like Netflix (NFLX), Tesla (TSLA), and Lam Research (LRCX) reporting, but Meta is the big one.Sentiment Is NeutralThe latest AAII Sentiment Survey shows that 38.7% of investors are bullish.That’s pretty much in-line with the long-term average of 37.5%. By 41.6% of investors said they were bearish, which is above the 31.5% historical average. Plus, CNN’s Fear & Greed Index is at just 18/100, indicating Extreme Fear.So it looks this market’s short on joyous participants.Rate Hike Expectations Subject to ChangeEven with hot CPI and PPI reports this week, expectations for the October 28 FOMC meeting haven’t changed much, according to the CME’s FedWatch Tool. The market is pricing in a 17.2% chance of a 25 bp rate hike, down from 27.7% last week.And the market expects an 88.2% chance of at least one hike by year-end. Not a big change from last week.REMINDER: Join the Mentorship Sami Abusaad and James Rich Young’s Pristine Mentorship starts soon. Learn about it here. Want to get to know them? Watch this webinar:
Continue Reading -->Assume the Crash Position
There’s an old Wall St. legend that Joseph Kennedy Sr. kept the family fortune that he amassed from bootlegging by getting out of stocks just before the 1929 crash. His opportune timing was the result of his astute observation that even his shoe shine boy was giving him stock tips. Kennedy reasoned that if even the most uninformed shoe shine boy was levering up in stocks, there was literally no one left to buy stocks. I was reminded of that legend last week standing in line at the bank. There was an octogenarian at the only open teller, and I was next in line. While patience is the only virtue I possess naturally, and abundantly so, even my heroic levels of patience wore thin as I waited for this elderly gentlemen to figure out how to use the card reader to allow the teller to access his account. He was completely oblivious to the line forming behind him as he recounted his stories from opening up his first bank account in the 1970’s while the teller came out from behind the booth to operate the card reader for the old man. His stories went on, and he divulged many details about his financial life as the line grew longer behind me. He was there to transfer money from his RMD, the required minimum distribution, from his IRA. He was heavily in stocks and quite excited about all his gains that allowed him to now consume in his retirement. He struck me as someone whose enthusiasm for the stock market was far greater than his aptitude in operating in the stock market. This was my shoe shine boy moment. I saw embodied in this old man the spirit of a hapless shoeshine boy whose entire fortune is resting on hopes of a greater fool to come along and buy his stock from him at a higher price. This was the moment my bearish inclination hardened into a firm resolve to short this market. The market breadth has been bothering me for some time, and I’ve been in about 75% cash for a while, but this short setup is too perfect to pass up so I’m reflecting my increased bearishness by shorting. I’ve been laying out my bearish case for over a month. Nothing I’ve seen has changed my mind, and it remains this: I think the 2026 market looks awfully similar to the 1987 and 1929 stock market crashes. We saw a summer rally, a break in late August, and now we are in the rally back up to the break level. All that remains is a failure to recapture the breakdown level, and then an October crash would complete the template. The signal I’ve been waiting for occurred Wednesday this week. The signal I wanted was a follow through day to the down side after a failure at the breakdown level. Tuesday, the Dow Jones Industrial Average got rejected at the $53K level on bank earnings. Wednesday is what I’m considering the follow through day. I’ve got a low risk stop right above the 50 day moving average which is 2% higher. A good crash could see a 20% down move so this risk to reward setup is too good to pass up. Here’s a pro tip, if you ever get a 10:1 odds payout, you take that trade every single time. I win on only 60% of my trades, so there’s a 40% chance I get stopped out of this trade at a loss. I’ve accepted the terms of the trade, and I’ll live with the consequences. This is a trade I like because I think I’ve got an edge here. That edge is my knowledge of historical precedent for a crash. I like to read old newspapers from the 1929 era to get a feel for the zeitgeist. Recently I’ve been reading the Financial Chronicle. One thing that stands out is how commonly accepted was the inevitability of a crash due to all the speculative excess that was occurring for two years leading up to the top. Back then, as will be this time, blame was placed on the Fed’s easy money policies. Back then, it was understood that the Fed’s credit creation was leading to all manner of unprofitable business venture that served no purpose (read the Oct 26, 1929 edition of the Financial Chronicle). Today we have crypto currencies, and there is untold amounts of time, talent, and treasure poured into this enterprise of dubious value. Nothing has changed in a century since the last big crash or since the South Sea collapse three centuries ago. Human nature remains the same today as it has been throughout all human history. We tend to over estimate the benefits of the future and look for ways to get rich quickly. This is what allows bubbles to form. Like all bubbles, this one too must eventually pop, and my view is that this one’s time has come. Of course the pundits will blame speculators when this bubble pops. But of course it’s not us speculators that cause the bubble. It’s policy makers that create the incentives for bubbles to inflate. This time around, with the Internet, there will be a permanent record (until it eventually gets scrubbed) of all the warnings since 2012 made by market participants that policy makers were setting us up for some terrible bubble to form that would eventually succumb to market forces and pop. The pin that pops this bubble could be a foreign central bank move. Either the Bank of Japan or the People’s Bank of China are likely culprits. The pin could also be an Anthropic IPO. This would suck up massive amounts of speculative capital and unleash tons of new shares into the market. The AI trade in general looks vulnerable with a topping pattern in the SMH. It looks like a double top to me. The last top at $630 also has an island with three days of isolated
Continue Reading -->SpaceX the Phone Company?
ATTN: Sami Abusaad and James Rich Young’s Pristine Mentorship starts soon. Check it out here.What a week! AI stumbled on reports of disappointing revenues at OpenAI. Middle East tensions kept oil prices high. US Treasury iields hit multi-decade highs. And Elon Musk’s SpaceX might be your new phone company! Let’s jump into it. Skip Ahead! October Is Getting BetterElon Musk Wants a Big Piece of the Phone/Internet/Cable PieJensen Huang Might Be Right About MarvellSentiment Is NeutralNext Week Will Be LoudRate Hike Expectations Subject to ChangeREMINDER: Join the Mentorship October Is Getting BetterSeptember was a very tricky month, with just 113 of S&P 500/SPY stocks up for the month. The average name was down 4.6%, and tech was the only major sector that was in the green. Things are broadening out in October. The SPY is up 2.1% for the month, and every sector is in the green, aside from Communications.And Communications would be positive if not for T-Mobile (TMUS) and Verizon (VZ), which got hit after Elon Musk’s SpaceX (SPCX) agreed to buy up wireless phone spectrum. Speaking of that news…Elon Musk Wants a Big Piece of the Phone/Internet/Cable PieSpaceX is looking to acquire low-band wireless spectrum from Grain Management. Upon FCC approval, SpaceX Mobile aims to become “a major mobile carrier in the US.” That’s because this new spectrum works indoors, unlike SpaceX’s Starlink, which generally requires a clear view of the sky. SpaceX also got FCC approval to launch 15,000 new Starlink satellites that supposedly offer 100 times the bandwidth of the current generation Americans spend hundreds of billions per year on phone, internet, and television service. Elon wants a piece of that pie. So before long, we might be paying Elon for combined phone and data service! That could mean tens of billions a year in revenue for SpaceX. By the way, here’s JR Romero’s take on SpaceX stock:Jensen Huang Might Be Right About MarvellIn June, Nvidia (NVDA) CEO Jensen Huang said Marvell Technology could be the next trillion-dollar company because of wild demand for networking infrastructure. It looks like Jensen might be right. I later bought Marvell stock, because I assume Jensen knows what’s getting bought in the world of AI infrastructure. And since Nvidia owns a $2 billion stake in Marvell, I gotta figure the companies will do lots of business together. Anyway…At Marvell’s Investor Day on Tuesday, the company issued FY2028 revenue guidance of $20 billion, and FY2031 guidance of $70 to $90 billion. These numbers were well above Wall Street estimates. This is just the latest in a stream of “all systems go” indicators for the AI industry. Because in recent weeks, we’ve seen AI-dependent companies like Micron (MU), Everpure (P), and Penguin Solutions (PENG) deliver huge results and guidance. This week, the market raised its eyebrows on a report that OpenAI’s revenues were lower-than-expected. But observers were comparing OpenAI’s reported numbers with Anthropic’s, which uses a different method of calculating revenue.Sentiment Is NeutralThe latest AAII Sentiment Survey shows that 40.3% of investors are bullish.That’s technically above the long-term average of 37.5%. However, it comes after three straight weeks of bearish readings. So that’s not exactly a sign of an ecstatic crowd. Plus, CNN’s Fear & Greed Index is at just 46/100, indicating neutral sentiment.So there’s not a ton of enthusiasm for a market near all-time highs. I’d guess people are still smarting from a rough September.Next Week Will Be LoudThis week was quiet. Next will be loud. We’ll get the critical CPI and PPI reports, and FOMC Chair Kevin Warsh will appear on an IMF Panel on Thursday. And earning season starts cranking Tuesday with JP Morgan (JPM), UnitedHealth (UNH), Goldman Sachs (GS), Wells Fargo (WFC), and Citi (C). We also have two major tech reports with semiconductor giants ASML (ASML) and Taiwan Semi (TSM). Investors want them to indicate that AI-driven semiconductor demand remains sky-high.Rate Hike Expectations Subject to ChangeThe market is pricing in a 19.4% chance of a 25 bp rate hike at the October 28 meeting, according to the CME’s Fedwatch Tool.And the market expects an 86.4% chance of at least one hike by year-end. However, based on the busy economic calendar next week, these numbers could change, big time.REMINDER: Join the Mentorship Sami Abusaad and James Rich Young’s Pristine Mentorship starts soon. Learn about it here. Want to get to know them? Watch this webinar:
Continue Reading -->Brace for Impact
I’ve been trying to catch the bottom in TLT and the top in rates since March. Thrice I’ve thought I’ve seen a bottom, bought, and have gotten stopped out for a loss with the third attempt occurring this week at $77 on the TLT. Rates should have spiked out in the last Fed meeting and be sinking back towards 3.75% by now, and the market should be breathing a sigh of relief. Instead, rates on the 10yr remain “bid”, and the 2-10 yield curve is re-steepening. This is a pretty wicked bear steepener at a moment when we should be seeing a bull steepener where the short end falls as the business cycle enters into the contraction phase. The facts that Warsh raised at the last meeting and that there is talk of another hike this month are alarming. I’m not saying the Fed is doing anything wrong, as I think they really just follow the bond market where it wants to take rates rather than set rates themselves (which is the way it should be in a free market system), but the fact that they keep seeing a need to hike means that the natural path for rates is higher even at these elevated levels. The dollar agrees with rates as its uptrend remains firm. Every penny above $101 on the DXY is pulling demand from financial assets like stocks and broadcasting the slowing velocity of dollars in the real economy. While the real economy is not in as terrible of shape as people feel, the financial economy is in a far more dire situation than prices would suggest. Stocks are far too expensive for any real capital allocators to step up and bid even if we get a 20% correction. I think the odds of an October crash are increasing with every tick higher in the 10yr yield. In real life, it’s irresponsible to yell “fire” in a crowded theater, but when my irreplaceable capital is on the line, my policy is to panic first and ask questions later. I can always chase stocks higher if I need to. There will be wave after wave of sectors and stocks in those sectors that setup and breakout if this spurt higher in the S&P and the NDX has legs and the market gets away from me while I’m in 75% cash. I’m wondering now if even that much cash is too little… Policy makers have staved off a normal correction at every turn since 2012. Capital allocators have never forgotten, and prices seem to have a memory as well; the SPX tagged its 2014 highs in the March 2020 spike down as a form of declaration that the move from those levels has significance. Like water in a container after a perturbance, stock prices will want to level out at a natural equilibrium, but we have no idea where that is after a decade of central planning. I’ve been waiting for a rally back to $53,000 in the DJI for a chance to short, but now I’m wondering if I’ll get that chance at all. The way I thought this story of a market top would play out is a nice looking, although unhealthy breakout in the SPX and NDX and a bounce in the DJI and RUT near their 200 day moving averages; all being the result of a normal bounce in the US Treasury bond long end as rates peaked then sank lower. There still may be a chance it plays out that way, but the TLT would have to bounce hard in the up coming week. We’d want to see the bonds rally as SPX falls as that would indicate a normal end of a cycle and maybe a 20-30% drop in stocks (which wouldn’t alleviate the expensiveness of stocks, but prices of all things may never get back to pre 2020 levels). I was expecting that level of correction to happen pretty quickly in October which would give it a “crash” feeling. But if rates keep going higher, and assuming I’m correct in my view that stocks reset lower this month, it means we have something else on our hands entirely. There are exactly zero market participants that have a working memory of trading through a market when both stocks and bond are declining. That’s the scenario we could have in front of us if the TLT doesn’t start reversing hard this week. The last time stocks and bonds declined in unison was in the 1970’s, and to viscerally remember the experience of trading through that, a trader would have had to have been in his 30’s then, which would make him in his late 80’s now. We don’t have any 86 year old traders now that Buffett is retired. The only source of knowledge we have on that period in market history has to come from books. Buffett’s annual letters are the only source I’ve read on the topic, and it doesn’t sound like an environment in which traders conditioned to a decade of central bank intervention could thrive. We are all products of the environment in which we grow, and while it is possible for a skilled trader to adapt to a new market environment, the unfortunate reality is that a bull market makes many traders more successful but undisciplined. I’ve known traders that came of age in the bull market in the late 90’s and got rich. They were professional traders that made it through the .com burst and kept winning into the 2008 burst, but they struggled to adapt to the QE era starting in 2012. Some of those guys were amazing traders, pushed through their obstacles and are still winning consistently in the market today. One saw even more success in 2021 than he ever had in decades of successful trading and retired from full time trading with a massive account in the 8 figures. These guys are proof that we can adapt and thrive in any market environment.
Continue Reading -->Desperation for Dollars and Liquidity
The Nasdaq 100 has gone nowhere for 4 months. Trillions in market cap is simply treading water. The price weighted Dow Jones Industrial Average has been declining for 2 months. Its two largest components are GS and CAT at $900 and $800 respectively. Both topped out over two months ago. The next largest component, MSFT, is a $500 stock, and it put in a 52 week high almost a year ago with a double top completed in Oct, 2025. While the SPX and NDX are near highs, the number of stocks making new 52 week highs is sinking lower with every rally in the averages. The number of new 52 week lows is expanding with every impulse higher in the averages. This is an unhealthy market. Insiders in many of the stocks I follow have been selling their shares all year while they use shareholder equity to do share buy backs of the very same shares they themselves are selling out of their personal holdings. The insiders know what their stocks are worth, and they are voting with their own money. Valuations of stocks in every single sector are far in excess of the average earnings power an owner of those shares can expect to receive over 15 or more years. This is an expensive market. It’s the banking sector that is most troubling from a valuation perspective. As the rate on the 10yr US Treasury Bond rises, the assets that sit on the regional banks’ balance sheets deteriorate in value. In the depths of the SVB crisis in 3Q 2023, regional banks were holding unrealized losses of $675B on their books vs $2T of equity capital. Rates are now higher than they were then. We changed accounting rules for “held to maturity” assets then so we could pretend our banking sector was solvent, and we must continue to pretend now even though their assets are presumably worth even less than during the SVB crisis. We’ll have to wait another month to get the total unrealized losses sitting on regional banks’ balance sheets after this most recent rise in rates. The potential exists that one third of our banking system’s equity is impaired in long duration assets they can’t sell from their books. This is exactly what happened in the S&L crisis in the 1980’s. The savings & loans went bust, and the banking system created the collateralized debt obligation security market to package up all the low interest rate loans no one wanted to buy in a high rate environment. We later realized this was in part the origin of the 2008 GFC, as the CDO market went into overdrive by the early 2000’s. This time however, the impaired assets aren’t held by a niche corner of the banking system. The impaired assets make up a major portion of all regional banks’ balance sheets. The stock market seems to be in a state of suspended animation. The SPX and NDX seem like they want to breakout higher. The DJIA, DJT, DJU, and RUT aren’t in a mood to follow. The market needs a catalyst to move in either direction. I think there’s only one bullish catalyst that could propel the market higher: an end to the Iran situation and a resumption of trade relations with China. There are rumors leaking out now that indicate we could see that, but even if that news does come out soon, the market should look right past that to post midterms when the conflict is almost sure to resume. Any rally on Iran or China news should bring the DJIA back up to the $53K level I’ve been watching to short. In fact, I’m counting on a rally in the next couple weeks to test out my theory on an October crash. A failure for the DJIA to trade above $53,700 before Halloween makes a crash a high probability event by my analysis. While there’s plenty to dislike in this market, there’s three interrelated forces I see driving the current environment. The stock market is being ruled by a triumvirate of higher rates, a higher dollar, and lower liquidity. Rates are going higher across the developed world. Only China is not seeing rate increases. The most common explanation for the higher rates is that global growth is picking up, but I can’t see any indication of that accelerating growth in the stocks that should be benefiting from growth. The growth explanation to rising rates floats like a lead balloon. The real reason rates are going higher is simple: asset holders are selling their bonds to raise the much needed dollars to keep up with rising borrowing costs. As the DXY rises above $101, we are witnessing the scarcity of dollars in real time. Every penny above $101 is another tranche of demand pull away from financial assets. A plethora of dollars means lots of potential demand for financial assets that can go into stocks and support prices. A scarcity of dollars implies the opposite. Without the willingness to freely supply dollars, liquidity in the financial system is drained, and asset prices are vulnerable. No asset is more vulnerable than an absurdly expensive stock market that has to compete with short term US debt for income. Long term holders of stocks are sitting on massive gains. They’re eyeing the real rates they can get by switching into bonds now. Real rates are over 2% now and increasing. Due to these higher real rates, bonds are acting as competition for increasingly scarce dollars that need a home. Gold is sinking as real rates rise. Gold is showing us the future path for stocks unless policy makers respond with liquidity creation soon. I’ve always followed the gold signal, and right now, gold is telling me there is a deflationary event on the horizon. It’s been my view for some time that the deflationary event is the end of the current business cycle. The business cycle is obviously entering into the contraction phase, but Warsh
Continue Reading -->AI Earnings Boom: Never-Ending Story?
ATTN: Sami Abusaad and James Rich Young are hosting an Open House next week. Sign up now for 5 full days of day and swing trades, plus in-depth training. 100% free. September was a slopfest and rate hikes may be farther away than we thought. Meanwhile, the AI earnings boom just got more ridiculous. So let’s dig in to the biggest and baddest stories in the market. Skip Ahead! September Was RoughMicron & the Ridiculous AI Earnings Boom Sentiment Is Still Not BullishNo Rate Hikes?Next Week Is About RestREMINDER: Join the Open house September Was RoughSPY was down 0.3% in September, while the QQQs were up 3.3%. Not so bad. But things were way uglier below the surface. Just look at all the red in this table showing September ETF performance:Just 113 of S&P 500/SPY stocks were up for the month, and the average name was down 4.6%. And by the end of the month, the average stock was 21.1% off its 52-week high. Essentially, you had to be overweight the right tech names (mostly semiconductors) to have had a decent month.Micron & the Ridiculous AI Earnings Boom Memory maker Micron (MU) dropped another amazing earnings report after the close, and AI is the driver. This chart showing Micron’s quarterly earnings per share over the past 10 years illustrates just how transformative AI has been:Micron earned $33.42 per share last quarter, more than 10X the $2.59 it earned in its last quarterly earnings peak in 2022. By the way, JR Romero expects Micron to hit $1,434. See why here:And the AI earnings boom seems to get more ridiculous by the week. FactSet reports that analysts now expect S&P 500 earnings growth of 29.1% in Q3, which would be the third straight quarter of 25%+ growth. And AI monsters like Nvidia (NVDA), Dell (DELL), and Super Micro (SMCI) are leading the charge. Estimates are going up so fast that analysts expect 63.5% earnings growth in the Information Technology sector. That is wild. It’s not like this is the first year of a bull market where we’re working off easy year-over-year comparisons. We are almost 4 years into the AI cycle and it shows zero sign of slowing! Starting to feel like a never-ending story.Sentiment Is Still Not BullishThe latest AAII Sentiment Survey shows that just 34.6% of investors are bullish.This is the third straight week of below-average bullishness. Meanwhile, bearishness remains high at 46.5%. Plus, CNN’s Fear & Greed Index is at just 32/100, indicating moderate fear.So there remains little enthusiasm for the market as a whole.No Rate Hikes?Friday’s weaker-than-expected Nonfarm Payrolls report came in the wake of the Fed’s Williams saying there is no urgency for rate hikes. So now the market is pricing in a mere 20.5% chance of a rate hike at the October 28 meeting:That’s down from 64.2% last week. However, traders are still pricing in an 81.9% chance of at least one rate hike by year-end.Next Week Is About RestThis week had some key events like the Micron (MU) earnings report and the Nonfarm Payrolls report. Next week, we get to take a break. There are no market-moving earnings reports or major economic data. But remember, we could get news on Iran so keep an eye out.REMINDER: Join the Open house Sami Abusaad and James Rich Young’s Open House begins Monday. Jump in now! Want to get to know them? Watch this webinar:
Continue Reading -->