Speaking of tops, on January 12, we posted an eerie chart of CSCO against the last remaining generals left in the markets using SMH as the proxy (we urge you to re-read here). Let’s revisit:
“In summary, we’re bears. Now raging Kodiak Bears…
We were just starting out in this business when we realized that the wheels were coming off the tech bubble and spending on networking was about to fall off a cliff, to be replaced by cancelled orders. While we’re not big on analogs, we can’t help but note how similar these two chart look, 24 years removed. Top is CSCO, poster child for the ‘value’ way to play the internet bubble. Below is SMH, as semis are the ‘value’ way to play the AI bubble. They’re similar, yet ever so slightly different. Note the fade lower—no crash…
Remember, the first rule of Ponzi Schemes is that they’re either inflating or deflating. They’re never at equilibrium, and they’re highly unstable. An equity bubble built on 3-month OTM call options, is far less stable than one built on 150% LTV margin debt. As Theta ticks along, dealers sell down their hedges, and the rest is simply gravity…(though we’re open to other explanations for where the margin debt went)
In any case, we’re increasingly convinced that the top is now in for US equity markets. The only question is; if we grind lower like in 2022, or we get real fireworks on the way down. We’ve tightened up our stops on our shorts, and going to let it ride…”
Turning back to the present, after getting through NVDA earnings, SMH finally got smacked and is looking more and more like CSCO and by the looks of it theres more downside to come.
Zooming out a bit, we are fixated on SMH because its constituents are (were) the last remaining generals (i.e. NVDA) that have been propping up this entire market.
@TrungTPhan
Topping patterns take time, but one by one the generals get taken behind the woodshed and shot. Excuse the kitschyness of quoting Livermore, but he noted “…my long-expected warning came to me when I noticed that one after another, those stocks which had been the leaders of the market dropped several points from the top and for the first time in many months did not come back. Their race evidently was run, and that clearly necessitated a change in my trading tactics.”
Just look around at the leaders of this run:
AAPL topped in December 2024
MSFT topped in July 2024
TSLA topped in December 2024
MSTR topped in November 2024
And the ultimate leader of speculative fervor, BTC, has done absolutely nothing since November 2024. And now down by ~25% off the high tick.
The writing was on the wall and KEDM certainly changed trading tactics as we beat a dead horse on our bearishness and even flipped on our bond thesis in the short term (yes, bonds are still FUCT in the long term). While short term equity rips are inevitable, we still see pain for the momo crowd. Trump/Bessent are focused on terming out the debt at a good print as a last-ditch effort to stave off a debt spiral, versus jawboning the stock market higher ala 2016. Meanwhile Musk and Big Ballz work their way through the swamp with their ax. They seem to want to front load the pain and try to get rates lower, then let the fiscal flow through and turn on some targeted Trump-branded, gold-card QE/stimmies. We’ve gotten a bit of pain but there isn’t blood in the streets yet. We think this is simply the first innings of the mega trends flipping with rates rising, small cap out performing large, value outperforming growth and EMs outperforming DMs… Once again, its all about fund flows, and when these flip, they tend to be secular in nature. Is TINA (there is no alternative) for US growth finally about to flip???
The real fun is just beginning! We have some pain ahead but we are already firming up our Christmas list. We want themes levered to higher rates (in the longer term after a scare), stimmies, fly over states, value (vs growth), hard/inflationary assets, America First/reshoring and, of course, EMs. Once we get a little taste of blood, we’ll be back on these pages to let you know what we see inflecting. In the meantime, KEDM is content with our bonds, shorts and EM themes…Good luck out there…
Kuppy’s Event Driven Monitor (“KEDM”) is not a financial or investment advisor and the information contained in this publication is not intended to constitute legal, accounting, or text advice or individually-tailored investment advice and is not designed to meet your personal financial situation. The investments discussed in this publication may not be suitable for you. You are required to conduct your own due diligence, analyses, draw your own conclusions, and make your own investment decisions. Any areas concerning legal, accounting, or tax advice or individually-tailored investment advice should be referred to your lawyers, accountants, tax advisors, investment advisers, or other professionals registered or otherwise authorized to provide such advice. KEDM makes no recommendations whatsoever regarding buying, selling, or holding a specified security, a class of securities, or the securities of a class of issuers, and all commentary is for educational purposes only. The investment examples noted are intended to provide and example of the events and data KEDM flags each week and is not representative of typical returns generated by each event or any future returns.
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Tina died in 2025…
A low frequency but juicy strategy where the edge is government incompetence.
Let’s dig in…
Speaking of tops, on January 12, we posted an eerie chart of CSCO against the last remaining generals left in the markets using SMH as the proxy (we urge you to re-read here). Let’s revisit:
“In summary, we’re bears. Now raging Kodiak Bears…
We were just starting out in this business when we realized that the wheels were coming off the tech bubble and spending on networking was about to fall off a cliff, to be replaced by cancelled orders. While we’re not big on analogs, we can’t help but note how similar these two chart look, 24 years removed. Top is CSCO, poster child for the ‘value’ way to play the internet bubble. Below is SMH, as semis are the ‘value’ way to play the AI bubble. They’re similar, yet ever so slightly different. Note the fade lower—no crash…
Remember, the first rule of Ponzi Schemes is that they’re either inflating or deflating. They’re never at equilibrium, and they’re highly unstable. An equity bubble built on 3-month OTM call options, is far less stable than one built on 150% LTV margin debt. As Theta ticks along, dealers sell down their hedges, and the rest is simply gravity…(though we’re open to other explanations for where the margin debt went)
In any case, we’re increasingly convinced that the top is now in for US equity markets. The only question is; if we grind lower like in 2022, or we get real fireworks on the way down. We’ve tightened up our stops on our shorts, and going to let it ride…”
Turning back to the present, after getting through NVDA earnings, SMH finally got smacked and is looking more and more like CSCO and by the looks of it theres more downside to come.
Zooming out a bit, we are fixated on SMH because its constituents are (were) the last remaining generals (i.e. NVDA) that have been propping up this entire market.
@TrungTPhan
Topping patterns take time, but one by one the generals get taken behind the woodshed and shot. Excuse the kitschyness of quoting Livermore, but he noted “…my long-expected warning came to me when I noticed that one after another, those stocks which had been the leaders of the market dropped several points from the top and for the first time in many months did not come back. Their race evidently was run, and that clearly necessitated a change in my trading tactics.”
Just look around at the leaders of this run:
The writing was on the wall and KEDM certainly changed trading tactics as we beat a dead horse on our bearishness and even flipped on our bond thesis in the short term (yes, bonds are still FUCT in the long term). While short term equity rips are inevitable, we still see pain for the momo crowd. Trump/Bessent are focused on terming out the debt at a good print as a last-ditch effort to stave off a debt spiral, versus jawboning the stock market higher ala 2016. Meanwhile Musk and Big Ballz work their way through the swamp with their ax. They seem to want to front load the pain and try to get rates lower, then let the fiscal flow through and turn on some targeted Trump-branded, gold-card QE/stimmies. We’ve gotten a bit of pain but there isn’t blood in the streets yet. We think this is simply the first innings of the mega trends flipping with rates rising, small cap out performing large, value outperforming growth and EMs outperforming DMs… Once again, its all about fund flows, and when these flip, they tend to be secular in nature. Is TINA (there is no alternative) for US growth finally about to flip???
The real fun is just beginning! We have some pain ahead but we are already firming up our Christmas list. We want themes levered to higher rates (in the longer term after a scare), stimmies, fly over states, value (vs growth), hard/inflationary assets, America First/reshoring and, of course, EMs. Once we get a little taste of blood, we’ll be back on these pages to let you know what we see inflecting. In the meantime, KEDM is content with our bonds, shorts and EM themes…Good luck out there…
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Kuppy’s Event Driven Monitor (“KEDM”) is not a financial or investment advisor and the information contained in this publication is not intended to constitute legal, accounting, or text advice or individually-tailored investment advice and is not designed to meet your personal financial situation. The investments discussed in this publication may not be suitable for you. You are required to conduct your own due diligence, analyses, draw your own conclusions, and make your own investment decisions. Any areas concerning legal, accounting, or tax advice or individually-tailored investment advice should be referred to your lawyers, accountants, tax advisors, investment advisers, or other professionals registered or otherwise authorized to provide such advice. KEDM makes no recommendations whatsoever regarding buying, selling, or holding a specified security, a class of securities, or the securities of a class of issuers, and all commentary is for educational purposes only. The investment examples noted are intended to provide and example of the events and data KEDM flags each week and is not representative of typical returns generated by each event or any future returns.