A new era dawns, rewriting the rules of the market game—

With the recent U.S. election, there’s been a big shift from left to right. If history tells us anything, though, these swings back and forth aren’t new; they’ve repeatedly shown up in American politics. A great read that dives into the timing and impact of these shifts is The Cycles of American History by historian Arthur Schlesinger. He noted that these political tides tend to move in roughly 18-year cycles, though it seems to be speeding up a bit in recent years.

For us as traders, there’s an opportunity here. These shifts bring new winners and losers in the business world. Not every company will benefit; some will ride the wave, while others will struggle. That’s where a solid strategy and selective stock picking come in—keeping ourselves on the “right side of the road” will be key in navigating what’s next.

SOFI - abc

 Trading Plan:

• Entry Point: If not already in the trade, consider entering on a pullback, possibly around $9.00-$9.20 to reduce risk and align with the bullish trend.
• Stop Loss: Below the $8.00 level (recent support) to protect against a deeper correction.
• Target: The next target could be around $10.50-$11.00, as this is the next psychological resistance level. If the momentum continues, there could be a potential breakout above $10.
• Risk Management: Watch for volume on the next leg up. If the volume stays strong, the uptrend could sustain. If momentum weakens further, there’s a risk of a pullback towards support levels near $8.00-$8.50.

"It’s Not Easy" covers a wealth of investment wisdom, focusing on second-level thinking, the challenges of making superior investments, and the risks associated with following popular trends.

Here are some key takeaways that may be helpful for your future analysis:

1. Second-Level Thinking: Marks emphasizes that to outperform, you need to think differently from the crowd—first-level thinking is simplistic and surface-level, while second-level thinking requires deeper, more nuanced analysis. For instance, it's not just about identifying a good company, but understanding how the market views it and where you can find a mismatch in expectations.

2. Investment Complexity: Investing isn't supposed to be easy, and anyone who thinks it is likely underestimates the nuances involved. Marks discusses how markets efficiently eliminate easy opportunities for excess returns due to the constant participation of well-informed investors.

3. Counterintuitiveness of Risk: Marks also highlights how the perception of risk can be counterintuitive. When everyone believes something is risky, its price tends to decrease, which can make it a safer bet. Conversely, when the consensus deems something safe, its price might be inflated, increasing its risk.

4. Loneliness of Superior Investors: Successful investing often involves being contrarian, leading to loneliness as you're likely to hold positions others deem unattractive. However, superior returns come from identifying overlooked qualities or mispricings that the broader market doesn’t see.

5. Price vs. Value: The memo reiterates that price alone doesn't make an investment attractive—investors must focus on the relationship between price and intrinsic value. The price of a seemingly high-quality asset may be too high, while a lower-quality asset could be undervalued and offer a safer investment.

These insights can guide your future analysis by emphasizing the need for deeper research, avoiding herd mentality, and focusing on finding value where others aren't looking.

Why You Should Exit the Equity Market When the Fed Starts Cutting Rates in September

History has shown us time and again that when the Fed pivots to cutting rates, the equity market is often on the verge of a steep decline. As we approach the next potential rate cut in September, it’s crucial to reconsider your position in the market.

Take a look at the chart above. It illustrates how the majority of market declines during bear markets have occurred after the Fed began cutting rates. This isn’t just a coincidence—it’s a pattern that has repeated across multiple decades and market cycles.

- Past Declines: After the Fed's pivot in the 1970s, the market dropped by 36% and 48%.

- 1980s: We saw a 27% decline.

- 2000s: The dot-com bubble and the Great Recession brought about drops of 51% and 58% respectively.

- Recent Years: Even in the 2020s, we've seen a 35% decline following the Fed's pivot.

The takeaway? When the Fed signals a rate cut, it’s often a sign that the economy is weakening—and the equity market is likely to follow suit.

 

As the Fed gears up for another potential rate cut, staying in the equity market could be more risky than rewarding. Now might be the time to start planning your exit strategy.

Top Opportunities Now

Overview:

The AI sector remains one of the most dynamic areas in the stock market, driven by rapid technological advancements and widespread adoption across industries. This week, we focus on companies with strong AI-driven growth prospects, recent positive news, or upcoming catalysts that could create trading opportunities.

1. Nvidia (NVDA)

- Current Price Action: Nvidia has been on a strong uptrend, recently hitting all-time highs due to its leading position in AI hardware, particularly GPUs crucial for AI development.

 - Catalysts: With earnings around the corner, Nvidia is expected to report strong results, driven by high demand for its AI products. Analysts are bullish, with many expecting continued growth.

 - Opportunity: Consider buying on dips ahead of the earnings report. Nvidia's leadership in AI hardware makes it a long-term hold with potential for short-term gains.

2. C3.ai (AI)

   - Current Price Action: C3.ai has been volatile but is gaining momentum as more companies adopt AI to improve operational efficiency.

   - Catalysts: Recent partnerships and expansion into new sectors could boost revenue. Watch for any positive earnings surprises or new contracts that could propel the stock higher.

   - Opportunity: This stock is more speculative but offers significant upside if the company can continue to grow its customer base. Consider options strategies to mitigate risk while capitalizing on potential upside.

3. Technologies (PLTR)

   - Current Price Action: Palantir has seen steady growth as it expands its AI-powered data analytics services to new sectors.

   - Catalysts: The company’s ongoing government contracts and expansion into the healthcare sector could provide a boost. Watch for any major contract announcements or product updates.

   - Opportunity: Palantir is a solid bet for those looking at AI's application in big data. Consider adding to positions on any pullbacks.

4. Microsoft (MSFT) 

-Current Price Action: Microsoft has been steadily rising, supported by its strong cloud business and AI integration into its products, including Azure and Office 365.

- Catalysts: Continued growth in its cloud and AI segments, along with potential new product announcements, could drive the stock higher.

- Opportunity: Microsoft is a less volatile play in the AI space, suitable for those seeking steady gains. Consider long-term positions or call options.

Risk Factors to Watch:

- Market Volatility: The broader market is showing signs of increased volatility, which could affect even strong AI stocks. Stay vigilant and consider protective strategies like stop-loss orders.

- Earnings Surprises: Negative earnings reports or guidance from AI companies could lead to sharp declines. It’s important to have a diversified portfolio and not overcommit to any single stock.

- Regulatory Risks: With AI's rapid growth, there’s potential for increased regulatory scrutiny, which could impact stock prices. Stay informed about any legislative changes that might affect AI companies.

Conclusion:

The AI sector offers substantial opportunities, but it also comes with risks. By focusing on key players like Nvidia, C3.ai, Palantir, and Microsoft, you can position yourself to take advantage of upcoming catalysts. Always ensure you have a risk management plan in place to protect your investments.

Actionable Tip: Consider using options to hedge your positions or to speculate on short-term movements, especially around earnings reports.

Trading Strategy - Prepare for the Dip - Profit from the Rise

 Here are 5 stocks that could be considered among the best in data storage companies, particularly those involved in data center infrastructure and cooling:

1. Seagate Technology (STX)

Seagate is well-positioned to capitalize on the increasing demand for memory driven by AI requirements. The company has made significant innovations to enhance the affordability and capacity optimization of its products. Their Mozaic 3+ platform, which incorporates heat-assisted magnetic recording (HAMR) technology, allows for drives with storage capacities exceeding 30TB.

2. Western Digital (WDC)

Western Digital has seen its shares double in value over the past year. The company is particularly sensitive to fluctuations in demand, which could be advantageous given the surge in AI data center construction. Their strategic move to separate hard disk drive (HDD) and Flash businesses could unlock additional value.

3. Micron Technology (MU)

While not exclusively a data storage company, Micron is a key player in memory chip manufacturing, which is crucial for AI data centers. Their high-performance memory products are essential for constructing efficient data centers. Micron's solid-state drives (SSDs) tailored for data centers are expected to gain traction as AI data center expansion continues.

4. Alphabet (GOOGL)

Although primarily known for its search engine and other services, Alphabet's Google Cloud division is a significant player in the cloud storage and data center space. Google Cloud has been generating positive operating profits, suggesting strong growth potential in this sector.

5. DigitalOcean (DOCN)

While smaller than some of the tech giants, DigitalOcean is carving out a niche in providing cloud infrastructure and software services to small businesses and startups. Their focus on this underserved market segment could provide unique growth opportunities as more businesses transition to cloud-based solutions.

These companies are well-positioned to benefit from the growing demand for data storage and processing capabilities driven by AI advancements. However, it's important to note that stock performance can be influenced by various factors, and thorough research should be conducted before making any investment decisions.

Stock Market Trends

Own the majors - NVDA - MSFT - GOOG - AMZN - META - AAPL

and

Data storage companies, especially coolant data storage centers are a need to have. The data centers are a must to own, they are part of core infrastructure of AI.

and

Think globally. - like ASML and SAP

and don't forget to

Enjoy the ride.

Trading strategies - NG -

 

“As a manual trader, should I fear automated/algo trading?”

I received this question from a guy, who was interested in the impact of algo trading.

And who was fearing for his survival as a manual trader.

There is all this talk about how algos are the end for manual traders. 

Here's why you should not fear algos/automated trading:

I have heard this argument for many years. Some believe that algos will rule trading and eliminate the manual trader... 

... yet we and many other traders are still trading profitably. 

Of course, you must improve your game and be more selective with your trading.

And if you are, there are still many plays where you will have an edge. 

A lot of algos are written by programmers who have not learned how to actually trade and thus are destined to fail. 

You can’t just crunch numbers and expect to be a profitable trader. 

As mankind has proven over and over:

Human emotion will trump even the best of automated intentions. 

Algos will continue to become more used. And there is a fortune to be made in using them. 

But there isn’t a program that can be developed and which will be set-and-forget. No algos will work until the end of your days. 

Just like no manual trading strategy will work forever.

There are just too many variables in the markets. 

Respect algos. But don't fear them. In fact, instead of being fearful, embrace it.

Use the new developments in the market space, such as algos, to improve as a trader.

Learn more about how it works.

And if you can’t beat them, join them.

It’s not a law that you can only do manual trading OR algo trading. 

With the right mindset, you can do both.