Troop Rotations
Tracking capital flows in stocks and crypto. Who you need to "shoot first" if you're looking for a market rollover, and a look at what I eat daily for breakfast.
Uncle Russell is having a moment. After lagging largecaps for a month, capital is flowing into smallcaps.
This feels related to the CPI print and the possibility of interest rates coming down. I’ve dug through plenty of filings to see just how many companies had their debt indexed to SOFR, and they’ve been stuck in the mud since 2022. If you’re NVDA, you can probably handle 5% rates but smaller companies are bleeding cashflow as they have to service their debt.
We anticipated this setup, and even if the Mag7 stocks take a breather, there is plenty of kindling for a big push in smalls. Don’t be shocked if we get a “buy the rumor, sell the news” setup as we head into the (potential) rate cut in September.
The Slop Bowl Apocalypse
Every morning, I eat the same thing.
6 ounces of chicken breast, 1-2 cups of rice, olive oil, and sauerkraut. It hits my macros, is easy to prep, and I can shovel it down in front of my screens without too much of a mess.
I’m a big fan of food bowls. Plates are for schmucks.
Yet if you’re a company that sells expensive food bowls, it’s been a bad run.
CAVA just reported earnings and the stock finished down 16% on the day. This is a few weeks after Chipotle (CMG) got killed on earnings, and SweetGreen (SG) fully round-tripped its 2024 rally.
It’s tough being in the bougie bowl business. I’m keeping SG on my watchlist for some kind of a reversal, because I think it has the potential to become the first robotics-driven restaurant with a recent acquisition they had. But for now, I’ll keep eating at home.
Who to Shoot First
I know it’s tempting. You look at the Nasdaq, the rally its had, the lack of a reset, and you think it’s time to try and nail the top.
It’s a tough trade! There’s a cliché in the markets that the generals get shot last. And if over 60% of the weighting in this index is the Mag7 generals, then it may be the last source of liquidity to get taken out.
Instead of trying to shoot the generals, why not shoot the captains?
There are names that have most likely topped out for this cycle, and their price action is looking more like trapped buyers trying to force their way out.
Roblox (RBLX) is a good example:
The stock was at $50 back in april, and trading in the 120s now. It just had earnings but couldn’t hold back above 135. The longer it holds under that level, the higher the odds we see a reset down to $110.
Which is why I suggested the Oct $110 puts for Convex Spaces Clients, getting in at a solid price and ready to play the rollover.
The Other Capital Rotation
We’re seeing the rotation into smallcap equities, but what about crypto?
Bitcoin is clearly having a moment, but Bitcoin Dominance is starting to wane:
Ethereum is currently the hot play as ETHA and treasury plays like BMNR are causing a capital flywheel.
Yet I expect capital rotations to play out like other cycles, where alt tokens start to markup.
I like XRP on the 3.40 retake:
I’ve also just put on a play in two higher risk setups that I’ll be sharing with my Convex Spaces Clients past the paywall. We’ll also have a few commodity plays that look hot, as well as 3 new stock setups.