Morning Digest 10/15

If you have paid time left on an individual Granola plan, we'll match it with a Wispr Flow subscription that includes Notetaker and dictation, and add bonus time, up to 12 months total. Sign in or create a Wispr account and submit proof of your plan to check eligibility.

Try Notetaker Free

Good morning partner,

Few things to cover this morning:

** PREMIUM MEMBER REMINDER (If you haven’t yet) ‼

You can now access the Telegram Community to receive our live trade desk alerts in real time (no more waiting on emails to hit), and a dedicated Q&A space with access to Gabriel for anything you’d like to discuss

Click here to join and get more out of your premium subscription **

Yesterday’s Session

Real nasty day for markets yesterday, with pretty much all the cyclical sectors of the market selling off in bulk.

Of course this has to do with the hotter CPI print, but in reality…

It wasn’t even that bad!

A 0.1% increase above consensus isn’t really a reason to dump the market by this much, so I am suspecting that the sentiment is rooted in something much darker.

Notice that, since last Friday when I sent out my short /MES futures alert, there had been no volume and volatility in the indices.

Then bank results came out and the whole thing started shaking.

The reason to worry is found in those reports themselves, where the biggest investment banks in the economy made it clear they want nothing to do with AI.

CoreWeave’s debt is now trading as if the company itself is going under just like Oracle, and there’s nothing NVIDIA or the government can do about it.

At the end of the day, none of these companies accounted for the risk of collapsing token prices and customer migration to cheaper Chinese models.

Anyway, our selected PMI stocks held their ground, and that gives me confidence that a recovery toward Friday’s options expiry day will reward them with outsized returns relative to the S&P.

We’ll see…

What is becoming clear to me is that I need to pivot, after a roundtable talk with some former co-workers and some international hedge fund managers,

I left with plenty of reasons to believe my research and focus should go into areas where none of this AI betting and institutional wash out is going on.

After a dozen studies and hours of modeling, I believe I’ve found that sweet spot, and I will share it with Premium members this weekend/next week with a proper report and explanation.

Very excited about that!

For now, the U.S. equity markets seem to hold significance to the PMI stocks we’ve selected, and for good reason.

Click here to access that PMI watchlist and keep these names for yourself.

Let’s take a look at Yesterday’s leaders and laggards:

Healthcare, Defensives, Energy.

By now it should be clear that rotations are beginning to accelerate into the real economy.

The best performers are sectors with cash flow security and an ability to pass down inflationary costs to their consumers.

That’s why my PMI selection, especially food items, is doing so well despite the aggressive selloff we just saw!

What we can take away from all this is that the risk chain I’ve shared before is starting to become a lot clearer now:

Neoclouds are being finished off as the first in line to suffer the consequences of AI excess betting, so now my focus turns to who is next in that line.

Memory.

This week I will be rolling my memory put spread trades to finance another few months of that trade, which will still pay regardless of the timing.

I can afford to be wrong on AI for months and still come out with a profit, that’s the beauty of some of the strategies we implement for you.

So stay tuned, as I will be breaking down that trade structure and reiterating my view on the industry.

Especially with Micron’s latest financials confirming the massive supply risks threatening to bring down margins and earnings.

Click here to read my Micron earnings analysis.

Excess Risk Taking

A big part of my investment philosophy comes from reading and timing the capital cycle across markets.

One of the most powerful signals usually comes from the biggest banks in one given system, and for the U.S. those are:

This week, both of them reported earnings and gave us an update on what is driving their businesses and balance sheets.

Turns out, Goldman’s earnings came mostly from investment banking (IB) and financial market fees.

In a normal market/economy, the majority of bank earnings should come from interest income, as these institutions keep lending to other banks, businesses, and consumers.

But,

When financial market and investment banking fees take over, it usually means the following is happening underneath:

If you’ve been with us for a while, then you know that all three of these are currently happening across the U.S. equity market.

And history, through statistics, show us that the current growth pace of IB and market fees at the big banks are almost certain to lead to lower S&P 500 returns in the next six months.

In fact,

Today’s rate suggests somewhere around a 10-15% drawdown from the highs in the index.

Simply put, a great time to put on those rotational PMI plays I’ve been pitching you all month, which coincidentally held up their prices during yesterday’s nasty selloff.

There’s a reason they refused to go down, and it just confirms the amount of upside we can squeeze out of them.

Click here to read my analysis on this PMI pick with 90% upside potential.

News

Movers & ES Levels

Now let’s get into some ES levels for today.

As expected, CPI brought about the expansion of the tighter ranges we’ve seen in the index all week.

This time, we fell below the cutoff point of $7,800 to start what could become a prolonged move lower.

But, keep this in mind…

Friday is options expiration day, and dealers need to collect their premiums, so I wouldn’t be too bearish here running up to the end of the week as we could very well see a sharp turn and move higher for those expiries.

That said, I am looking at the $7,735-$7,750 range for support where great R/R opportunities lie for buyers.

If you don’t think that’s the case, and want to sell this lower, then look to $7,785 as your first selling point, or $7,800-$7,810 for an even better one as long as we manage to see a failed breakout there.

Personally, I think buying at those lower ranges will be a better setup especially as we go into options expiry.

Portfolio

Last quarter, I showed you why and how I pivoted my portfolio strategy.

I went from:

To:

After another month went by with slower returns than I thought…

I called on some former co-workers and hedge fund managers friends of mine, and started to ask what they were doing about it.

After all, we all share similar strategies.

Their answer confirmed what I had been thinking for a couple of years now.

And it is that the market saturation has created an almost impossible battlefield to win in if you’re trading outside of the trillion-dollar market caps.

Which is why what I do can seem complex…

Buying, shorting, options spreads and quant models.

So after a few models and research, I found the one area that still works for small investors in the U.S. equity markets.

It doesn’t require so much complexity, other than buying and tracking order flow/financials like a hawk.

That’s where my next home runs are going to be, and so far I’ve come up with a watchlist of a dozen names to start digging deeper into.

A watchlist that will be shared with Premium members soon.

I may even host a webinar on the whole thing…

Here’s the positioning update for today’s premium members: