Our Arguments Are Starting to Play Out
This week we argued that:
* With everyone on the same side of the bullish boat (in a market dominated by passive products and strategies) and with an increasingly casino-like backdrop of momentum-based buying (as a template see “The CNBC Panelist Said What?” (specifically, the poster child Jim Lebenthal’s “FOMO” buy of Micron at $1,200 recently), including the proliferation and popularity of leveraged ETFs and 0DTE options) — equities remain vulnerable to a market structure event.
* At the very least, we anticipated a wild setting of dramatic rotation in sector form factors and that is what we have gotten in the last week. Stocks are moving in integers — in the sort of volatility market participants are not accustomed to.
* Specifically, we expected the heady swing back into hyperscalers was likely to reverse. (Google’s ($GOOGL) announcement of technical problems with Gemini served as a catalyst yesterday.)
* We thought a correction in hyperscalers coupled with a large correction in the over-hyped leadership in memory and semis could contribute to a substantial fall in the Nasdaq. This is what we have been seeing in the last three trading session.
* We warned that the IPO market’s heady activity would backfire on investors. Yesterday SpaceX ($SPCX) (one of our shorts) broke its IPO price. Standard Nuclear ($STDN) and Csquare ($CSQR) joined SpaceX by breaking below their IPO prices on Thursday.
Again, this is a great environment for dispassionate and opportunistic traders but a lousy setting for the buy-and-hold crowd.
Position: Long GOOGL (VS); Short SPCX (S)
