Can't Keep A Good Dog Down
The Remount Setup, Betting On Horses, and the Tariff Bottleneck Worth Millions To Traders
The market structure over the past few weeks has been beautiful.
After the China Release Valve, the market entered into a range. There wasn’t enough news flow to give juice to the call buyers, and plenty of hedgers still had on positions that needed to decay.
For the most part, the Nasdaq held in a 500 point range. The first failed break was on some macro news, but that dip was erased by the end of the day.
The second failed break was to the upside this time, with NVDA earnings.
That third push lower is the green light for a full market breakout. On Friday there was a news dump that brought the market back down to its clear support level. The aggression off the lows was the signal that buyers are ready to rock and roll again.
My first target will be the overnight highs from the NVDA earnings… but let’s be honest. We know what’s on deck.
All Time Highs.
I don’t make the rules! Yet if the market is going to follow the Path of Most Frustration, a new ATH would do it. Institutional capital is already foaming at the mouth with their underperformance, trying to chase the market higher.
My bet is we will see some kind of bullish news flow for AAPL, some headline that comes out about tariff exemptions or a proper China deal.
Smalls Have The Juice
The Russell is about to come into “no man’s land.” This is a pocket where not much price action has traded… it runs from about 2180 to 2200. When you have an area like this with lower liquidity, it can grease the skids as we run into the other end of the range.
Everyone has their eyes on large cap tech… but if the animal spirits come into play as funds have to chase, there may be a dash for trash in small cap land.
Spot the Difference
I’ve got two charts for you to take a look at.
These are both weekly charts. One is Robinhood (HOOD), a trading brokerage. The other is Palantir (PLTR), the fastest growing defense firm on the planet.
Can you tell me which is which? Can you really?
There’s a basket of very liquid momentum stocks that are all on the same conveyor belt. This isn’t about earnings or growth or who the CEO is. These are all in the same liquidity basket that is being heavily traded at prop firms, hedge funds, and family offices.
The lesson is that stock picking goes beyond fundamentals, and you MUST consider the participants in the market.
Tesla Is Late To The Party
Mainstream investors and financial media are (finally) warming up to the idea that Tesla is not a car company— it’s a robotics and AI company.
The Model 3 is just a robot with wheels. It’s also why the Tesla IR site has a robot on the main page, not a car.
Robotaxis are hitting Austin in a few weeks. It could completely change the economics for TSLA. Instead of selling a car once to a consumer, you generate significant cash flow on an asset, which improves margins and growth.
But they are behind. Forget Waymo’s rollout— China is in play.
Pony.ai (PONY) has 300 autonomous vehicles in the PRC, and they’ve just inked a deal with the largest taxi operator in Shenzhen.
The difference here is that Pony doesn’t make the cars. They can install their tech at a local factory, or they can slap it on in the aftermarket.
It’s a strong value proposition for automakers, who are light years behind Tesla on any kind of autonomous driving.
PONY is giving us a solid technical setup combined with a narrative followon when the Robotaxi hype hits in the next few weeks.
The stock had two recent stop loss runs that were bid up aggressively, suggesting that larger players are pulling bids as a way to get access to cheaper inventory.
Provided that $16 holds, there’s a good chance it breaks from the upper end of this range and starts to catch some momentum.
I’m playing it with the Jun 18/22 call spread. I picked a spread instead of straight calls because the option premium is through the roof, and traders are preferring to buy OTM options, so I’ll get long but take out some of the option-related risks with changes in vol and time. The tradeoff is that if the stock runs to $100 overnight, then I will miss out on a ton of upside.
China Has Us By The (Metal) Balls
Here’s the headline that’s popping up in Consensus Media:
This is a massive bottleneck for the US in trade war negotiations— but not for the reasons you may think. I’ve got two slides that I’ve stolen from a great presentation from Scott Tinker:
China appears to have a solid lock on Rare Earth extraction. While their country may need to import oil and coal, they’ve got solid reserves… about 20x more than what the US has available.
Yet this isn’t the biggest problem:
This is the massive materials problem that the US faces when negotiating with the PRC. It’s not just about where the minerals come from… it’s also who processes them.
The United States faces a strategic risk in mineral processing across the board. Which means there are companies in play that are the only alternative outside China. Which makes their stocks very compelling upside plays.
I’ll share more research about one later this week.