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Bull or Bear? Pick a Side and Fight
Have you ever wondered why we refer to the daily battle of buying and selling that takes place on Wall Street as the bulls vs. the bears? I think it has to do with the nature of each beast’s relationship to man. A bull sees its target, puts its head down and horns up, and charges ahead no matter what obstacle is in its way. A bull doesn’t stop until it either kills or is killed by the matador. A bear spends much of its time in hibernation and hiding, and it only makes its presence known at the moment of attack. A bear keeps away until a victim enters its territory. In trading we’ve got to take the same approach as these two beasts. If we do the work and determine that we should be bullish, we’ve got to charge ahead on the long side and disregard obstacles. If you’ve ever been long a stock that was charging higher, you know how great the temptation can be to sell early and lock in profit to make sure it doesn’t slip away. Ignoring the negatives in a real bull trend higher is a difficult skill to attain, and perhaps the best we can do is try to hold on a little longer each time we’re in one. In the same vein, if we do the work and determine the appropriate stance is bearish, we’ve got to wait for the market to come into the area we want, then attack and leave. Bulls charge relentlessly, and bears maul swiftly. This is the proper way we should think about our own trading. Each one of us has to determine for ourselves whether we are bullish or bearish. There’s much work that goes into that conclusion, but once we’ve chosen a side, we must use our capital to fight. As for myself, I’ve determined that the appropriate stance for my irreplaceable capital is on the bear side. I’m in 75% cash and waiting for a spot to short. I’m waiting for price to come into the area I want, about $53,000 on the Dow Jones Industrial Average, and then like a bear, I’ll attack. The market is leaning bullish now with the SPX and NDX breaking higher so the DJIA could get nearer the $53K level in the last weeks of September or by the first couple of weeks in October. I’m looking to short the DJIA ETF, the DIA, at around $530 with a tight stop above $537.75 which is the high for September. Above $540 on the DIA and I’ll flip to bullish and scramble to get long something. I’ve also incorporated a time stop into my trade plan: if stocks haven’t started to decline by Halloween, I’ll abandon the bear side for the rest of the year. I’m not going to hold on to a losing position just because I’ve done a thorough analysis and decided I’m bearish. DIA Trade Plan: But what exactly are the facts that give me a reason to be bearish? Merely being “concerned” about stocks’ advance is not a rigorous analysis. Professional speculation requires real analytical work, especially when trying to pinpoint a bull to bear turn. I’ve done the work that leads me to the conclusion that there’s a near picture perfect analog to the 1929 and 1987 crashes. I’ve kept a checklist of signs to indicate when the turn in the business cycle is approaching, and I’ve been keeping an eye out for the anecdotal evidence I remember from the 2008 crash like constant road construction as municipalities rush to spend the record high tax revenues from a previously booming economy and signs of excess like the Hummer EV, which is a nearly exact replica of the sign of excess of the Hummer H2 I saw in the housing boom leading up to the 2008 crash. But a proper analysis requires more than just anecdotal evidence to be taken seriously. So I’ll present my bear case here for anyone to pick apart. Below is a video showing my analysis of the 1929 and 1987 crashes and how they resemble the current market in 2026. 1929 and 1987 Comparison to 2026 video: In addition to the historical October crash analogs, I see further evidence that we are in the early stage of a bear market when I look outside the popular stocks. Aside from several mega cap technology stocks, the underlying market health has been deteriorating for some time. The transports and utility stocks are not confirming any of the bullish narrative. On the contrary, they are looking more like tops. I’ve never seen a bull market in stocks work out with the transports and utilities in a compromised price structure like they currently exhibit. DJT: DJU: The housing stocks are also showing stress. Housing is a major driver of consumer spending which is 70% of our economy. With Warsh’s latest rate increase, I don’t see how housing will pick up without a major move lower in house prices. Neither higher rates or lower prices are going to be supportive of higher economic activity in the short run. XHB: Warsh’s latest rate hike also reminds me of 1987. Alan Greenspan was selected as the new Fed Chair in August of 1987. He thought that business activity was too hot and consumer prices were about to skyrocket so he took rates from 6.5% in August to 8% by October 1987. The rate hikes proved too difficult for the bull market to charge through. The rate hikes were the banderillas thrust into that bull market’s back to wound it, and Treasury Secretary James Baker’s October 18th remarks that he would tolerate a much weaker dollar in response to the Bundesbank’s rate hike was the estocada, the fatal blow delivered to the bull market. Stocks crashed the next day. So far, Warsh’s tenor as Fed Chair is a great analog to Greenspan’s just before the 1987 crash. Aiding my bearish stance is the fact that we’ve
Continue Reading -->Bottom-Up Roadmap for Stocks Over the Next 6-9 Months
Every trader, in order to be successful, must have some systematic process for identifying, entering, and exiting trades. Each trader’s specific process is going to be unique to their own experiences and beliefs. My own process has been developed over almost 20 years in markets, first as a hobby while I was a telephone salesman in a cubicle for a big tech company, next as a trader on a prop desk, then as a professional equity portfolio manager for a small RIA, and lastly as a refinement when I completed the CFA exam. Because I operated in both the trading and investing worlds, my process is a combined approach that incorporates both fundamentals and technicals. Similarly, I combine both a top-down and bottom-up approach to asset, sector, and individual stock selection. In previous posts I’ve explained my top-down reasoning why my view continues to be that we are in the contraction phase of the business cycle. This week I’ll present what my bottom-up analysis reveals to us as we try to anticipate price movements in the stock market over the next few quarters into 2027. As opposed to a top-down approach which starts from trends and works down more granularly to individual stocks, a bottom-up approach starts with individual stocks and works up to extrapolate larger themes. A bottom-up approach is a wonderful antidote for the narrative heavy environment in which we currently find ourselves. An analysis of individual stocks often reveals that a popular narrative is not gaining traction in the stocks that should be strong if the narrative were true. As a naturally born contrarian, I’m skeptical of any popularly accepted narrative, and I rely heavily on scrolling through thousands of charts a week to verify that the prevailing narrative is being validated by price. Thankfully, we don’t have to go over thousands of stocks to get a workable roadmap for how to deal with this market into 4Q 2026 and early 2027. A smaller sample of stocks is enough so I’ll keep my bottom-up analysis contained to a manageable list of sectors and stocks in this week’s post. I’ve taken the leading stocks in the sectors that are most crucial to the US business cycle at the moment: semi-conductors, transports, industrials, utilities, chemicals, and basic materials. The industrial sector contains seven sub industry groups: aerospace, automotive, construction, distribution, electrical equipment, building products, and machinery. I’m focusing on just the leading stocks in these sectors because I think they are a full representation of the most influential narrative in the stock market today: the AI buildout. I want to analyze the individual stocks in these sectors to discover any clues they might tell us about the future path of the AI buildout, which will dictate the path of the US business cycle, which will ultimately influence stock prices. We start at the bottom and work our way up to get to our goal: anticipating the movement of stock prices. The sectors and stocks we’ll analyze seem like a lot of material to digest, but I’ve distilled the information down to a basic form that is easy to absorb in a short amount of time. It’s a useful exercise for anyone risking their capital in the stock market. These are the stocks we’ll be analyzing in each sector; semi-conductor: ADI, AVGO, MRVL, MU, QCOM, TSM, and TXN; transports: UNP, NSC, CSX, JBHT, ODFL, DAL, and UAL; industrials: aerospace: GE, RTX, BA, LMT, GD, HWM, TDG, LHX, and NOC; auto parts: MGA, BWA, and MOD; construction: PWR and FIX; distribution: URI, GWW, and FAST; electrical equipment: ETN, VRT, and EMR; building products: TT and JCI; and machinery: CAT, DE, PH, ITW, CMI; utilities: SO, NEE, and DUK; chemicals: APD, DOW, LYB, SHW, ECL, PPG, and DD; and basic materials: BHP, RIO, FCX and NEM. I’ll begin on the fundamental side and analyze the valuations and end with a video on the technical side to show what I think the price and volume structures are warning us about. The only goal I have when analyzing fundamentals is to answer the question “do I want to own this stock?” That means I like to think as a business owner would if he was considering pouring all his family’s capital and his life’s energy into a business. I like to take the 15 year average of pretax income as a rough estimate of what the company would be able to earn on average over a business cycle, in other words, its earnings power. If the market cap of equity is 10 times the average earnings power, I know that stock is probably below fair value. If 10x is below fair value, 20 times the average 15 year earnings power is about the top of the limit. 20x means there’s very little room left for good price appreciation from an ownership perspective. Stocks that trade this high are for rentals only, not ownership, as they are mainly earnings growth stories that can experience temporary, but powerful price movement in either direction. The market cap to earnings power ratio over this 15 year time frame is what I refer to as the PE15. I like to see lots of sectors with low PE15s because that means too few positive outcomes are priced in, and any good development will cause money to flow in. If enough sectors of the market have low PE15s, it means the market is attractive as a long term asset. Long term buyers are what create price trends that last. However, if the market is unattractive to long term money, I would not expect a new price trend higher to materialize in the next 6 to 9 months. The PE15’s for each group of stocks by sector and my assessment of the potential for a proper trend higher are listed below, but if you want to jump to the conclusion without any of the detail, here it is: with a couple exceptions in mainly chemical commodities, natural resources, and small auto
Continue Reading -->The Survivor Market
Bad news? Who cares? This market is a survivor. Keep reading for the evidence. Skip Ahead! This Is the Survivor MarketWe May Have a New AI SuperstarCrypto Is Back on TopSentiment Is Not BullishThe Great Rate Debate ContinuesNext Week SHOULD Be QuieterThe Pristine Mentorship Is Open This Is the Survivor MarketSeptember is historically the worst month of the year for the stock market. And we’ve had plenty of tricky news to navigate, including:Hot CPI & PPI reportsThe FOMC raising rates and signaling more hikes comingThe 10-Year Treasury Yield hitting 5%OpenAI’s Sam Altman and Anthropic’s Dario Amodei calling for a slowdown in AI developmentCrude oil hitting $100+ because of ongoing Iran tensionsBut all things considered, we’re hanging in okay.The SPX is down 0.7%, while QQQ is up 0.1%. And the leading semiconductors are up, with SMH rising 1.4%. Technically, the S&P tends to fall an average of 0.6% in September. So we’re doing worse than usual. But falling just -0.7% in the face of all the aforementioned bad news is impressive. This market is a survivor. And it may be thanks to all this bullish AI news:We May Have a New AI SuperstarThe market got a short-term spook Monday when OpenAI’s Sam Altman and Anthropic’s Dario Amodei called for a slowdown in AI development. But we keep seeing more and more signs of staggering demand for AI infrastructure. This week, networking equipment maker Ciena (CIEN) announced it expects 30% compounded annual revenue growth through 2029. Power infrastructure name Forgent Power Solutions (FPS) skyrocketed this week after a monster earnings report thanks to data center demand. By the way, FPS is a clear candidate to be the next AI superstar. It’s growing like mad, dropped gigantic guidance, and it’s still 40% off the highs:Meanwhile, neoclouds CoreWeave (CRWV) and Nebius (NBIS) both implemented price increase for compute capacity. And Nvidia’s Jensen Huang said the company will double chip sales next year. The good times just keep on rolling. And that’s helping hold up the economy and market.Crypto Is Back on TopBitcoin and Ethereum have been a mess this year. But they’ve picked up steam, and the Grayscale Ethereum Trust ETF (ETHE) is now 70% off the lows. And it looks like it may be breakout out of its month-long range.Sami Abusaad just explained the bull case for ETHE on Wednesday, when it was trading at $19.33. Sentiment Is Not BullishThe latest AAII Sentiment Survey shows that just 28.8% of investors are bullish.This is down from 38.0% last week, and it’s well below the long-term average of 37.5%. Meanwhile, 53.3% of investors are bearish. This is the highest bearish reading since May 1, 2025. Yes, 2025. Not 2026. Plus, CNN’s Fear & Greed Index is at just 28/100. Fear & Greed was in the mid-60s in August. The crowd is not exactly in manic depression mode. But there is not a lot of joy out there.The Great Rate Debate ContinuesThe FOMC raised rates by 25 bps on Wednesday, with Chair Kevin Warsh saying “The plain fact is that inflation is too high and has been for too long.” The CME’s FedWatch Tool now shows the market is pricing in a 58% chance of a 25 bps rate hike at the October meeting.And it’s pricing in a 44% chance of a third hike at the December meeting. This has the 10-Year Treasury yield at just over 5%. And this is fascinating, because there was a time when people were worried about the 10-year hitting 4.5. Now we’re way past that and the stock market just keeps on chugging along.Next Week SHOULD Be QuieterBased on the calendar, you’d think the market should be quiet. We have no economic data Monday because of the Yom Kippur holiday. And after that, we have some Treasury auctions, Durable Goods, and Michigan Consumer Sentiment. And Costco (COST) is the lone big earnings report. However, it feels like anything could happen with Iran, and at some point, higher bond yields will matter.The Pristine Mentorship Is Open Sami Abusaad and James Rich Young’s Pristine Mentorship is open! (spots are limited) In this video, they take you through the 4 steps to becoming an elite trader.
Continue Reading -->Any Trade With a Stop Is a Good Trade
There was one change that improved my profitability as a trader and had more impact on my account and my life than anything else I’ve ever done. That was my decision in 2022 to stop allowing negativity and pessimism to form my beliefs. Instead, I chose to constantly find something to be bullish about, get long, and let price show me when I was wrong. My initial foray into the stock market almost 20 years ago was not a profitable endeavor, partly due to the fact that my desire for wealth was greater than my skill in attaining it, but largely due to my persistent negative mindset. In retrospect, I can see now what I could not see then: my beliefs were not aligned with winning. I was reminded of my old habits recently while talking with friends who insisted their money troubles were due to “the system” being set up against them. I certainly won’t dismiss their valid concerns about the systematic devaluation of our money, but as I pointed out to them, gold has already compensated us for the risks inherent to our fiat currency system. While, in general, I sympathize with their feeling that the necessities of life are becoming less attainable due to “the system,” what I find far more problematic to their particular situation is a negative mindset, a belief that gaining wealth is impossible, which leads to behaviors that ensure that it is. Once you believe you can’t, you’ve ensured you’ll miss all the opportunities that prove the contrary. I recognized immediately my own former limiting beliefs in their expression of concern. When I believed the system was aligned against me, I traded like it. I took small wins out of fear the market would take them back. I allowed losers to take up long term residency on my position statement because I was certain with a little more time I would be proven correct. I was trading poorly, like someone with all manner of insecurities and unhelpful attitudes towards money and that views themselves a victim of forces beyond their control. Belief is a powerful force that can allow you to see the positive or limit your mind’s eye to only seeing the negatives life brings your way. For reasons I’m still trying to pin down in my middle aged years, my former beliefs in my youth had created a negative bias through which I viewed the world and my trading. With such a negative bias, I wasn’t able to see the market for what it is: an endless stream of opportunities waiting to be exploited and a means to a better life. The way out of this negative bias is simple but not easy; it comes down to a choice each of us, as traders, must make for ourselves. I had to make the choice to trust in my ability to consistently show up, wait for setups I recognize, get in without hesitation, and get out without regrets. Of course this approach required an immense amount of study and practice before I was able to deploy my approach at a large enough scale for professional speculation. My study included analyzing thousands of my trades over many years. The main takeaway from my analysis is this: stops keep my account in tact. I need my account near all time highs to aggressively allocate to whatever trend I find developing. There is only going to be one, maybe two big trends a year that I can take advantage of to pump my account to new levels. There will always be uncertainty as to exactly when a new trend is developing, but with stops, I can limit my risk of loss and try repeatedly to get into what I think is a developing trend. But what is the next trend? All my analysis leads me to conclude that the underlying forces that will create the next trend are building underneath the surface level of index prices we see on the tape. It’s still my view that we are in the contraction phase of the business cycle, and because of this, we should see economic and inflation pressure subside within the next three to six months. That should bring down the long end of the yield curve, but the market doesn’t agree with me right now. I’m not fighting it. I’m letting my analysis of price structure take me out of a losing trade with TLT. Was it a bad trade? Absolutely not. I followed my plan exactly, and I did it in the appropriate size, which has always been my weak spot. As long as I follow my process, I’m not going to get overly concerned about losses. New opportunities will come, and having the confidence to move aggressively when I see a setup I recognize is what will get me in a good trade. For TLT, I’m out with a small loss, but I’ll keep stalking this for a better setup to get long when the market is more agreeable to my view. My account is still within a stone’s throw of all time highs, and I plan on keeping it there. Until I take them out and spend them, the dollars in my account are simply ammunition in my armory that will be needed for battle. A big trend that will pump my account to a new level will come. That’s what the market promises, that prices will always move. When the forces align that move prices in a trend, that is the time to engage in battle. Until that time, I’ll defend my account with small skirmishes that are required to not take any more losing months this year. March was my only down month, and that was due to TLT as well. I’ve had to sell off my positions in fertilizer and energy stocks to offset my loss in TLT for September, but I’ve done so after concluding that locking in good gains is more important than positioning for me
Continue Reading -->Knowing When To Press Your Bets
Last week I laid out my case for a top in long rates on US Treasury Bonds. This week, I’m growing more confident that an important low in the price of US Bonds has been made. However, I’m still a fair weather fan, so I’ll be out in a heartbeat without remorse if my stops are hit. It’s been my view that we are in the contraction phase of the business cycle, and if that view is correct, we should see growth and inflation expectations start to come down for 2027. This shifting dynamic is what can finally put a bid under US Bonds. This is because there will always be demand for income. When I was running an equity portfolio for a small RIA shop, I had to stretch way out the risk curve far beyond where I was comfortable playing to get the portfolio yield just barely into the 3% figure. I was buying foreign telecom OTC equities to get there. This was during the financial repression of the QE era, and it was not a good time to be a dividend portfolio manager. Today, we are being offered higher yield, even above what I had to stretch for back then, in a money market. You can lock in way higher than that if you are willing to extend duration a decade or more. The TLT, my preferred way to play the top in yields, pays a monthly div of ¢33, about 4.7%. This may not look exciting compared to the gains you can get from a well placed equity trade, but believe me, 4.7% return with no risk is nothing to shake a stick at. The unfortunate reality is that at the moment, there is nothing more attractive than US Bonds for my irreplaceable capital. I’ve been in about 75% cash since March, 2026 when I peeled off the last of my gold miners I was willing to part with (I’ve still got my core position in the big 5 miners) so I’ve been looking for another core position in which to allocate. Stocks are just not attractive other than trades right now because they are all trading at about 20x pretax earnings across the board; no matter what sector you look at, every single stock worth owning trades at basically 20x what you can expect it to earn every year. The only exceptions are the oils like XOM and CVX which trade about 15x and my favorite fertilizer, NTR, which trades about 12x what I estimate is an average of earnings over a cycle. These names can still offer potential for reward with the small chance of an energy or grain price spike, but the risk is shifting to the downside as the Iran conflict seems to be nearing a conclusion, or at the very least, a de-escalation. Any way I analyze the attractiveness of stocks for ownership, I come up lacking any justification for anything other than renting specific names for a trade. In an environment like this, it’s best to just stick with the easy trade, and for me, TLT is the easiest one out there. If the lows of this week hold in TLT, then my focus will shift towards deciding where to add. Proper speculation requires only averaging up, never down. Stan Druckenmiller said the key to his success was forming a trade idea, putting on a position, then really stepping on the gas and levering up when his position started to work. I want to apply the same logic to TLT. The first step is seeing the TLT hold the lows of this week at about $81.75. The next step would be to see some strength above $83. A weekly close above $83 on strong volume would be some indication that it would be time to press on TLT with tight stops below $83. This TLT play feels a lot like my gold trade that won me the ability to trade for myself, but this time, I’m going to apply the lessons I learned from that campaign. I did almost everything wrong during that speculative campaign: I averaged down, didn’t have a trade plan, didn’t use stops, had no risk control, etc. The only thing that made the trade work out for me was size. I was 90% long in one sector because I was confident in my analysis. I used 8th grade math to plot the dollar value of US debt going back 50 years, and used an R-squared regression to get a y=mx+b equation. I plugged in the year 2030 for “b”, and got $45T for our debt. I then took the current portion of foreign held debt outstanding at 20%, and I asked, if even 1% of that dollar value shifts to gold, what would the supply and demand balance look like? It turns out, that at the time I performed this basic analysis in 2023, the new demand for gold would be 4.5 tons at the $2,000 price gold was then, and new supply would be only 2 tons by 2030. It was a no brainer, and the trade worked out. This time around, I’m going to still rely on my analysis that we’re in the contraction phase which means growth and inflation should be coming down, but I’m going to adhere to strict risk controls to put on my TLT allocation. Each time I see a higher low hold, I’ll treat that as a new tactical spot to buy stock to add to my strategic core position. Like Druck’s playbook, if the trade starts to work, then and only then will I add. The reason I can be so confident in my analysis that we are in the contraction phase, is because all the signs I’ve been looking for are appearing. I’m relying on signs to form a checklist approach to pinpointing the turn in the cycle rather than hard data points because a data-driven, statistical modeling approach is notoriously wrong at turning points. Modeling
Continue Reading -->AI Just Went Bonkers
What a week! We had a jobs report, a massive earnings beat from Dell (DELL), and a big Tesla (TSLA) Robotaxi event. So let’s dig in: Skip Ahead! Dell & the Gang Confirmed AI Demand Is BonkersMemory Is Back on TopEuphoria Is Missing In ActionThe Great Rate Debate ContinuesNext Week Is Oracle and Econo-themedThe Pristine Mentorship Is Open Dell & the Gang Confirmed AI Demand Is BonkersNvidia (NVDA) impressed with its incredible guidance on its August 26 earnings report. And Dell (DELL) did the same on Tuesday, forecasting full-year revenues 11% above consensus. We also had strong AI-driven results this week from Broadcom (AVGO), Ciena (CIEN), Snowflake (SNOW), NetApp (NTAP), and Hewlett-Packard Enterprise (HPE). Demand for AI infrastructure is just bonkers. As good as industry earnings are, they’d be even better if not for shortages of inputs like memory and good old-fashioned electricity! Remember, Nvidia guided for 70% revenue growth vs. Wall Street expectations of 44%. But its growth would be more like 100% if it could actually meet demand. And this is a company that is facing increasing competition from its own customers, who are racing to build chips in-house! David Prince of T3’s Inner Circle discussed Dell and other key names in this video: Memory Is Back on TopWith all the bullish AI news, it’s no shocker that memory & storage stocks are leading the market to start September, with the Roundhill Memory ETF (DRAM) up 4%.DRAM has become one of the most popular ETFs in the market, trading over 23 million shares per day. SanDisk (SNDK) in particular had a big day on Friday, up 10%. Maybe we should have listened to Sami Abusaad Tuesday when he made SanDisk his #1 name. Euphoria Is Missing In ActionThe latest AAII Sentiment Survey shows that 39.7% of investors are bullish.This is the first week of above-average bullishness since July 15. So does that mean the crowd is positive? Not exactly. 39.7% isn’t even in the neighborhood of euphoric, and it’s not far from the long-term average of 37.5%. Plus, CNN’s Fear & Greed Index is at just 42/100.This is because many of Fear & Greed’s inputs like new 52-week highs are at historically low levels. Euphoria is missing from this market.The Great Rate Debate ContinuesOn Friday, President Trump told the Fed to cut rates. Or else he’ll stop trade with certain countries that have surpluses. But what is the market pricing in? The CME’s FedWatch Tool shows the market is now pricing in a 58% chance of a 25 bps rate hike this month. And it’s pricing in an 86% chance of higher rates by year-end. Next week’s CPI and PPI reports should impact expectations.Next Week Is Oracle and Econo-themedEarnings season is slowing to a crawl following this week’s biggies like Dell (DELL), Palo Alto Networks (PANW), Broadcom (AVGO), and Snowflake (SNOW). Next week, Oracle (ORCL) is the one to watch for three big reasons: 1) It’s an AI bellwether2) Investors are worried about the company’s debt load3) It will give insights into enterprise software demand But the real action will be in economics with CPI, PPI, ADP Employment, and the ECB rate decision coming in. Not to mention, markets will be watching bond auctions because of ongoing concerns over interest rates and the FOMC.The Pristine Mentorship Is Open Sami Abusaad and James Rich Young’s Pristine Mentorship is open! In this video, they take you through how to build a trading plan, then tell you all about the program. Highly recommended:
Continue Reading -->Are You In The Biggest Trade In The USA?
There’s an aspect of human nature that makes us want money for nothing. Even the workaholics among us would gladly find more leisurely pursuits for their high-strung energy if the money rained down and into their coffers. Speculation is hard work, but many novices get into trading thinking all they’ve got to do is turn on the computer, open a brokerage account, and the money will come pouring in. If you’re reading this, you know that’s not how this works. As traders, if we want to make money, we’ve got to do the work and take risk. Taking risk is hard, because it makes you vulnerable to loss, but risk is a necessary part of reward. There is simply no way to earn a profit from the market without taking risk… Or is there? The concept of the “risk-free” rate always bugged me. They taught us this concept in university finance class, but I always thought it was a little bit bogus. It never made any sense to me that you could earn profit without any risk. I always felt the professors were neglecting to teach us about the real risks hidden in the risk-free rate. If you’ve gone through graduate or CFA level finance curriculum, or just used common sense, you’ll agree that my suspicion was correct. The truth is, even in the asset that we call risk-free there is still risk to your wealth if you own it. Of course I’m referring to US Treasury Bonds as the risk-free asset. When you buy a bond, you know exactly the return you will get if you hold it to maturity, so in that sense only is it a risk-free asset. The real risks you take on when you buy a bond are duration risk and reinvestment risk. If you buy a short term bond, there’s very little duration risk and some reinvestment risk, but with long bonds, there’s absolutely tons of duration risk. But for a trader, anytime you hear risk, you should think reward. There is no reward without risk, so when you hear risk-free, you should think “reward-free.” Short term US Bills are fairly risk-free, so that doesn’t interest me. However, the question I keep asking when trying to determine how to allocate my irreplaceable capital is: does the risk inherent in long duration US Treasury Bonds currently represent a great reward-to-risk setup? The best trades are the ones where the perceived risk is way higher than it actually is. Right now, we have a bit of a paradox occurring in the market: the supposedly risk-free asset is perceived to have the highest risk of any asset out there. Every conversation in the financial media is now centering around the riskiness of the risk-free asset, our debt. There’s too much of it is the oft repeated phrase. I agree, but the problem is, that was a concern for 2023. The time for worry has passed. Gold has doubled, and with that move from $2,000 to $4,700 (which I think will prove to be a short term top followed by a trip down to $3,825 before price moves much higher by 2028) we’ve already gone through the pricing in of a bad debt situation. Markets don’t price something in twice. We were already compensated for the risk of an out of control debt situation by owning gold since 2023. The debt level shouldn’t be traders’ focus any more, but interest rates should be. My view is that we are in the contraction phase of the business cycle, and if I’m correct, we should see long rates come down as they price in lower growth and lower inflation next year. This is where duration risk can become duration reward for a willing trader. The TLT has tons of duration. Being a 20+ year bond ETF, it has the longest duration of any of the heavily traded bond instruments. You’re getting paid for taking that duration risk as well. TLT pays a monthly dividend from the underlying bond coupon payments of 4.7%. That’s as close as you’re ever going to get to “money for nothing” in my opinion. But how can a money for nothing opportunity exist? It’s because too many market participants are on the same side of the trade now. Everybody is bearish on US bonds and thinks rates can only go higher. Even Lacy Hunt finally threw in the towel and said he’s bearish on bonds. Where was he in 2020 when rates on the 10yr were 0.4%? From my vantage point, that was the time to be bearish on bonds, not now when they are at 4.7%. We haven’t seen rates this high in a long time. When rates on the long bond were last here, it was October 2023, and the Fed had completed its first full rate hike cycle since 2008. Inflation was out of control because checks were getting sent to every American man, woman, and child. Nothing remotely similar to that is happening now, but virtually all market participants are of the mind that inflation is coming, and more money printing is about to commence. The liabilities of the US Government have no where to go but up, they say. I’m not sure whether that’s true or not, but what about the asset side of the balance sheet? No one ever talks about the assets that back up that debt. It would be like talking about the guy with $350K mortgage debt, without ever mentioning the house that backs it up. The debt is only one half of the equation; the other half is the assets. The USA holds vast resources that exist as part of the invisible asset side of the balance sheet. Those assets include both natural resources and our productive labor. The physical assets of our country are in need of some capex maintenance, to be sure, but a conscientious revamp of our country’s federal land use policy, fiscal policy, regulatory policy, interstates, water rights, and airports would
Continue Reading -->This Is What Market Intervention Looks Like
It was many years ago, I can’t remember where (maybe in Market Wizards?), when I read that trading an equity position is like surfing: you feel the wave form underneath you, stand up on your board, and go along for the ride, shifting your balance to stay on long enough for the wave to carry you to shore. I was impelled to believe in the veracity of this mental image because it presented an idea of what trading was that naturally appealed to me: a skill that could be learned by doing. There was something so wholesome about the idea that markets are organic, bound by unseen natural forces; that they conform to natural rhythms to which we can attune our senses and predict their ebb and flow and thus, that they can be capitalized upon by simply being in tune with their rhythm. Back then, I believed that guys who pulled wealth out of the markets were the ones that were best able to feel the current of liquidity in the markets, put on a position, and just ride the currents of capital flows in a primal, visceral way, stripped down from all intellectual embellishment. When I finally made it to a trading desk in 2013, I was sitting next to the guys who “surfed” the market. They got rich by reacting to their natural instincts, formed over many years of operating in markets. But something changed that summer. That was the beginning of the QE era, where the natural forces of markets were overwhelmed by the dictate of central planners. Everything about the nature of markets started to change that summer. That is when almost all trading converted over to algorithmic trading. Instead of riding the waves of capital on the open ocean, if you wanted to survive, you had to abandon your instinct to feel the wave form underneath you, to be in tune with the tides. Instead, trading became a game of waiting for the signal from central planners that liquidity was on the way. Like a wave pool at a water amusement park, we had to just get in and wait for them to turn on the wave machine. Our waves became man made, precisely controlled, and merely imitations of the powerful forces of nature. Even the seasoned pros on the desk were struggling to adapt to the new environment. We had to find new tools to help us regain a sense of balance. It was the on the trading desk where I first learned the value of Twitter as a trading tool. Each of us had one of our six monitors dedicated to our lead trader’s Tweet Deck feed. He had a curated feed of the most important accounts on Twitter. Over time, as we were forced to adapt to the new market environment, we learned which accounts were the most valuable for their ability to cut through the noise and draw our attention to the signal. The lead trader’s favorite account back then was RedDogT3, Scott Redler’s Twitter handle – on my honor, a true story. Red Dog was one of the first guys to flag a signal, a sort of poker tell the market would show before it succumbed to the algorithmic robots, bent to the will of the central planners, and began the grind higher for the day. Back then the signal was AAPL. Every day, no matter how bearish the set up was, no matter how weak the entire market was, if AAPL went green, as Red Dog would point out, we knew it was time to cover shorts and scramble to get long something. After I left the trading desk, I ran an equity portfolio for a small RIA shop, and Twitter was still a useful tool if you knew who to follow for the signal. There was an account called BamaBroker that got popular because he was one of the only guys to pinpoint another signal that became the market’s tell during the Yellen Fed. He called it the “Bat Signal” and it was the early morning, pre-market, 8:00 AM yen smash. If he saw the USD/JPY flash green at 8:00 after a spike down move, he knew it was the central planners’ signal that market prices were being supported that day by systematic yen selling. Back then, policy makers wanted a weaker yen to induce more of the yen carry trade on a daily basis. The yen was much stronger back then as it took only 113 yen to buy $1 vs the 160 yen it requires now. Here’s a Bama tweet thread from Oct, 2017: And here is the USD/JPY on the morning Bama’s tweet describes: Below can be seen the correlation between the USD/JPY and the S&P futures back in October 2017. On days when the USD/JPY was bid up, the market was strong. When USD/JPY fell, the market couldn’t make upward progress. USD/JPY vs SPX in Oct 2017 (with yen intervention days annotated in green): Bama was an anonymous Twitter account until he got doxed one day. It turns out his dad ran a fancy RIA. Bama was rumored to be trading the ES in huge size and making clients good money, but his tweeting about it was a bad look for an old, blue blood, Southern gentry type of advisor. Bama’s account went dark and never returned. For many years I haven’t thought about the lessons I learned from his tweets. That is until this week. A couple weeks ago I wrote about Bessent’s intervention that squeezed me out of my SPY short. That was the first sign that bearish conditions would not be allowed to develop, and this past Wednesday, early in the pre-market, I saw the Bat Signal once again. USD/JPY this past Wed, Aug 19th: S&P 500 futures at the same time: This time, however, the Bat Signal is just the reverse of what it was in 2017 when Bama brought our attention to it. Now, the yen is
Continue Reading -->My Favorite Secret AI Stocks
What a week! Moderna (MRNA) announced a major cancer vaccine breakthrough. Rising Treasury yields have traders on edge, even with Treasury Secretary Scott Bessent cranking up buys of long-dated bonds. And Wal-Mart (WMT) announced disappointing sales. Now let’s dig into the most interesting stories in the market ahead of a very busy week for tech earnings and economics. Skip Ahead! Nvidia Needs a ShockJensen Huang’s Other Favorite Stock Is Reporting EarningsThese Banks Might Be the Best “Secret” AI StocksThe Great Biotech Short SqueezeTraders Are Still SkittishNext Week’s Calendar Is StackedThe Pristine Mentorship Is Open Nvidia Needs a ShockNvidia (NVDA) earnings are coming in hot on Wednesday, August 26.And it looks like we need a big monster beat and guidance to catapult the stock higher.The stock has sold off the day after earnings 4 straight times, and in 6 of the last 8 quarters. You can see this on the right-most column here:The culprit is shrinking revenue beats.Yes, the company is growing fast but gone are the days of giant revenue beats, which is the heart soul of momentum stocks.Nvidia always reports strong numbers, but they it’s been years since they’ve shocked the market with blockbuster sales and guidance.Will that change next week?With the way hyperscalers like Meta (META) and Alphabet (GOOGL)are spending money, anything is possible.But for now the bears seem to have the post-earnings advantage. Speaking of earnings…Jensen Huang’s Other Favorite Stock Is Reporting EarningsI’ll go out on a limb and say Nvidia CEO Jensen Huang’s #1 stock is Nvidia. His second favorite appears to be Marvell Technology (MRVL), a stock I bought myself. One reason I jumped on Marvell was because Mr. Huang called it “the next trillion dollar company” back in June. Marvell reports after the close Thursday. The company has its fingers in multiple AI data center applications, so we’ll get even more insights on AI infrastructure spending trends. Traders will also be eager for more details on Marvell’s monster chip deal with Google. To make a long story short, Google’s gonna spend a ton of money on Marvell chips. And in return, Google gets the right to buy up to 58,970,907 Marvell shares at $206.58. The more Google spends, the more Marvell shares it can buy. That’s great for Marvell shareholders because Google has a financial incentive in keeping Marvell’s stock price as high as possible. Jensen Huang gave me a reason to buy. Google gave me a new reason to stick with it. But with Marvell’s stock 44% off the June 29 lows, it’s hard to argue that expectations are anything but high:And on Friday, we saw an interesting piece of news from Marvell competitor Broadcom (AVGO), which makes me think…These Banks Might Be the Best “Secret” AI StocksBloomberg reported that Broadcom is looking to raise more than $60 billion in its newest AI debt financing deal.2026 has seen a wave of capital raises from the likes of Amazon (AMZN), Alphabet (GOOGL), Nebius (NBIS), CoreWeave (CRWV), Iren (IREN), Terawulf (WULF), and so on. And that money is going straight into AI infrastructure. Plus, it’s a major IPO year with SpaceX (SPCX), Cerebras Systems (CBRS), SK Hynix (SKHY), and eventually Anthropic, OpenAI, Databricks, and Stripe. And the M&A market has been quite strong thanks to megadeals like the Paramount/Warner Bros combination. This means lots of deal fees for investment banks like Morgan Stanley (MS) and Goldman Sachs (GS), regardless of which actual AI companies end up dominating. And as long as AI doesn’t put the bankers out of business (it won’t), Wall Street will print money from AI-related dealmaking. So they are next on my buy list.The Great Biotech Short SqueezeThe State Street SPDR S&P Biotech ETF (XBI) is up over 36% in 2026, putting it at #3 on our ETF leaderboard:Biotech got a turbo boost this week when Moderna (MRNA) announced successful trial results for an mRNA vaccine for melanoma. But what many people are missing about the biotech boom is the impact of short squeezes. The XBI ETF itself has short interest of 116%, because ETF shares can apparently be borrowed and shorted multiple times. And the average stock in the XBI ETF has short interest of 14.3%. For comparison, the average short interest of a stock in the VanEck Semiconductor ETF (SMH) is just 4.0%.Traders Are Still SkittishThe latest AAII Sentiment Survey shows that 35.5% of investors are bullish.This is the 5th straight week of below-average bullishness, which I chalk up to stubborn inflation (I mean the real inflation we feel, not government numbers) and other economic concerns. So even with equities near record highs, the crowd is unwilling to say “I love this and we’re going higher.” On balance, this is positive because it implies a lack of euphoria. Meanwhile, the CNN Fear & Greed Index, is at 57, indicating modest Greed.So sentiment remains neutral overall. There just aren’t strong feeling on either side.Next Week’s Calendar Is StackedAside from Nvidia and Marvell’s earnings, we have a lot going on next week. In economics, we have CB Consumer Confidence, Core PCE Price Index, GDP, and Durable Goods. And of course there’s a chance Fed Chair Kevin Warsh makes a market-moving announcement at Jackson Hole on Friday. And on the earnings side, we’ll be watching CrowdStrike (CRWD), Salesforce (CRM), AutoDesk (ADS), and Workday (WDAY), which will give us key insights on software demand amid concerns about encroachments from AI. Here’s the full calendar:The Pristine Mentorship Is Open Sami Abusaad and James Rich Young’s Pristine Mentorship is open! In this video, they take you through how to build a trading plan, then tell you all about the program. Highly recommended:
Continue Reading -->Your Unique Talent Is Your Greatest Asset in Trading
“Money grows when it’s allocated deliberately, not constantly.” – Jessie Livermore Professional speculation, at its core, is a game of questions and deductions: questions are posed, deductions are made, and bets are placed. We know we’ve deduced correctly when a profit is shown and wrongly when a loss occurs. It’s always been the difficult questions that lack apparent answers that have interested me. In the act of deductive reasoning to answer difficult questions is where the profitable opportunities lie. Life outside the stock market has the same quality: it’s in searching for answers to the existential questions that are difficult to answer where the most opportunities lie. The most difficult question I’ve ever had to think about came from a friend some years ago. Over lunch he asked me a seemingly simple question, but I fumbled for an adequate response: “what is your talent?” That question sent my neurons jumping across synapses in all directions inside my brain, but none were able to come back on a return path with the correct information to articulate a clear response. I ended up blurting out something rather incoherent about being “able to interpret reality properly.” The cynical look on his face betrayed his genuine incredulity that my response had been formed with any modicum of introspection. That question was posed to me over seven years ago, but now I have a veracious reply: it’s patience. My talent is that I’m able to exercise extreme patience after I’ve deduced that an outcome is certain. Scrolling through thousands of charts a week, I’ve deduced several certain outcomes are now developing. Below are three charts of prices that want to move higher: the TNX, the USD/JPY, and the AW futures contract. TNX, (10yr yield): USD/JPY, (the quote of this contract is inverse of the convention so the price is actually yen per dollar; the higher this price is, the weaker the yen): /AW (Bloomberg Commodity Index Futures): The difficult question the speculator must ask is: “will these prices be allowed to move higher?” In the case of the dollar/yen and the 10yr yield, it’s obvious after last week’s intervention that the answer is a hard NO. That leaves only commodities as the most fertile ground for the speculator to toil in. Commodities are the only asset that policy makers cannot influence indefinitely because they are tethered to the physical world, whereas fiat and bonds are purely abstractions. While the appeal of commodities is probably obvious to most market participants by now, their risk is perhaps less frequently discussed. I’ve learned that professional speculation requires one to think risk first. If one produces enough well-reasoned trade ideas, managing the loss on the incorrect ideas will ensure a steady profit, given enough repeatable trials. Speculating in commodity stocks requires an extra degree of focus on risk because of the commodity producers’ pronounced boom/bust cycle and tendency to trade with valuations inversely correlated to the cycle. This means that buying commodity producer stocks is not as easy as buying a growth stock and holding. Commodity stocks have to be bought deliberately and sold intentionally. Theoretically, they should be bought when their trailing twelve month PE is highest or even negative, because that will be an indication that they are being bought at the bottom of the cycle after economic weakness reduces their earnings to almost nothing. They should be sold when their earnings are accelerating after a period of increase. Ostensively we can look at the gold miners as a recent example of how commodity producers should be bought and sold. In 2023, NEM had lost $2B but traded at about a $40B market cap. The sky-high PE was due to many years of depressed earnings with a gold price that refused to move above its cost of production. This was the time to buy. In 2025, NEM made $11B in pretax earnings, and traded at a very cheap 10x PE. That was the time to sell. I had the trade of a lifetime in gold miners from 2023 to March of 2026, and while I’ve still got a chunk of my original position in the big 5 miners, I’m in no rush to build back my position. If metals and mining stocks aren’t yet in the right buy point of the cycle, why is the Bloomberg Commodity Index drawing my attention? Here’s the question the astute speculator must now ask: “with the business cycle clearly entering the contraction phase, why is the Bloomberg Commodity Index trying to break higher?” The answer to that question is that the largest components of the index are energy and agriculture. We all know the reasons crude started it’s ramp this spring. Normally, after a move up on conflict escalation fears I would be inclined to dump my energy stocks like XOM and CVX and my agriculture stocks like NTR, but not this time. In fact, I’m waiting with patience for the right spot to add. I’ve also written about my inclination to bid on pipeline stocks recently. I’ve studied food and energy price spikes extensively this year, and there is one thing in common that all food and energy price spike periods share that the astute speculator can key in on: a long period of supply drawdowns followed by a sudden supply crunch. In 1971, Nixon introduced price controls on domestic oil, which caused a supply drawdown as it was unprofitable to increase production. The real oil price spike didn’t occur until 1974 when Arab oil was under embargo. This is the pattern: sustained supply draw down for a couple years, then sudden supply crunch, followed by a price spike. The pattern also plays out in food price spikes. While the pattern is similar, the motivations and human nature are more readily observed with the grain price spikes of the past. In 1988 there was an extreme grain price spike, and it fits the template: a sustained period of supply draw down starting in 1985 when agricultural legislation was passed
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