Change of Old Guard. New AI Regime.

Weekly plan 6.22.24

Alright traders, welcome to another weekly post. Let us see what I have on my radar this week.

But first, let us recap the levels from last week.

The primary expectation was to see any dips bought into 5460 with 5480 being the secondary demand zone.

While 5460 never traded, we dipped down into 5480s and took off from there and traded a high of about 5575 before spending most of the week lower near 5520. In related markets both the VIX and DXY spiked up and remained higher, though subdued compared to longer term trends. Friday was a major options expiry but saw nearly muted moves across the markets. This highlights how efficient these large Market Makers have gotten at keeping the lids on prices when there is large options expiry, like the one we saw on Friday.

For instance, in NVDA, there was around 10 million contracts in total open interest on Friday, which for most part expired negative or 0. I myself shared a NVDA CALL as a lotto on Friday, which went up from 50 cents to about a dollar before expiring at 0. Similarly story across the board as the SPY had 5 million in open interest for the monthly expiry. This was indeed very strange to see a common stock like NVDA have double the open interest when compared to a large index like SPY. These type of indicators are indirect means to gauge that many of these high flying stocks like NVDA are flying based on mostly short term options shenanigans rather than valuations at this point. Tesla used to have this crown for many many years and has now been taken over by NVDA.

In fact, TSLA only had about one fifth the total open interest, compared to NVDA, highlighting that TSLA has lost some of its fervor to the new comers.

In terms of news, there is important data prints next week- such as the core PCE, GDP and consumer confidence on Tuesday. Minus any major shocks, I think a lot of this is currently priced in.

This is a good segue to talk about TSLA for a moment.

While TSLA does not report its latest earnings for another 4 weeks or so, there are a few interesting dynamics at play.

First one is that somehow the collapse in value of used EVs is bullish for this stock.

The context being that the average age of used cars on the US roads is now making new highs. This means some of the folks looking for a new car can now look at the collapsed used car EV market and find some bargains in Tesla cars. This then brings these buyers in the whole TSLA ecosystem - theoretically positioning then to upgrade to a new Tesla car down the road.

I think there is some merit to this thinking. This can be seen in a wider differential between the average used TSLA EV and average new priced TSLA EV. Tesla has also now opened up new models in existing best sellers like the Model Y and Model 3. In theory this allows them to maximize the sales price between those two models.

For instance, within Model Y space, you now have a long range All Wheel Drive and a Long range Rear wheel drive. Earlier if you wanted a long range, it could only be had in an All Wheel drive configuration. This in theory, nets more dollars for TSLA.

Personally I also think that the fundamentals matter less right now in this sort of market for TSLA. They will at some point but not today.

A rising tide lifts everything. A lot of money has been made in the names like NVDA. This is why you see this stock getting so big that a mere 10% drop equals a drop of 200 billion dollars or more in terms of market cap. Some of this money will flow into other areas deemed cheaper by investors. Can you consider TSLA cheaper? In terms of price alone, may be.

I am sharing this blurb to underline my thought process on why I still think that 170 dollar area is key on TSLA. Yes we can all come up with all sort of theories why TSLA is fundamentally in a weak spot, but until we get some help from the market Gods and the stock actually starts selling off below 170, I think longer term bearish thesis remains a pipe dream. The bears MUST overcome this support level.

Minus that, I think this stock is headed higher into 200 dollar area. It is 182 at the moment. Notice that I am not basing my view on any of the hype around this stock - like FSD. I have no consideration of FSD when it comes to valuating this stock. I will consider FSD in my valuation model, when it starts showing up as a significant line item in their income statement. In other words show me all the money TSLA is making with the FSD roll out in their earnings reports.

Now note that as we go thru July or so, and we enter August, we will begin to see distinct themes develop that are themes based on 2024 elections.

There will be clear winners if Trump wins. There will be clear winners if Biden wins and I will be sharing these as the picture becomes more and more clear, within next 4-6 weeks.

VFC

With respect to VFC, I personally see a bottom on this here at 12-14, may be like 6 months ago when I first made that call.

If you do not know what they do, they make North Face &b Timberland Apparel.

This stock has really not gone anywhere, but I do think this is part of a long term bottoming process in this stock. It is about 14 now, but I think if 12 or so holds, it is probably headed higher into 17-18 towards end of the year, may be early next year.

If you look at the analyst ratings on this stock, more than 80% of analysts have a Hold rating on the stock. In an analyst world, Hold is a dirty four letter word- it really means Sell but they don’t openly say it. Like what sense does it make to Hold it when it is down 90% from its highs?

Only 2 analysts have a buy rating on this stock. Now compare this to something like NVDA. NVDA has may be 50 TOP Wall Street analysts follow it. Almost all of them have not only a buy on this stock but in fact a strong buy!

Wonder when will they all flip to Hold on NVDA?

This is why I take all these analysts with a grain of salt. They all for most part follow price action. They do not have original ideas. They are all BUY at the TOPS and HOLD (aka SELL) at the lows.

Earnings Play

MU

MU earning is next week. I like the weakness in stock to see dips supported for a push higher into 150.

This is 138 now. I shared this around 100 dollars as a bullish Stack play.

I like a BULL PUT spread on MU on volatile event like earnings. In such an instance, a 130/135 PUT Credit spread which is now around $2.2 make sense to me personally.

If the stock does not collapse below 130 after earnings, the trader gets to keep a credit.

The max risk in such a trade is the spread minus cost paid for the lower PUT which is around 2 bucks; so the MAX risk if the stock collapses is about 2.9 for a Credit of about 2.2 which is potentially paid if the stock remains unchanged or rallies.

ACN

Now I want to take one example with y’all and share what I mean that the profits from all the AI hype will some how need to translate to these other stocks and perhaps we can use the example of ACN here.

ACN is a very old TOP 13 Substack stock. I shared it around 100 and is now 300. I was briefly short term bear on this around 370.

Accenture or ACN is one of the largest consulting companies globally. This is a very well run business- they do tremendous work, and their top consultants can charge as much as 400-500 bucks per hour to clients such as Morgan Stanley, Nike, Apple, Amazon- you name it.

It is a profitable business as well.

Now what I anticipate personally is, that in next year or so, companies such as ACN, will successfully sell the AI dream to their clients. As AI tech becomes more and more mainstream, companies like Accenture will help implement such projects for their clients. This should help ACN a lot I think.

Now the risk for ACN is that the jobs market will simply collapse. But now with 4-5 months left to elections, you can argue if the admin will let the jobs market collapse?

When the jobs market collapses, companies will be hesitant to hire ACN and pay their consultants 300-500 an hour when they laying off their own $70 an hour employees. This is not a good look on moral grounds.

This will be a short term bump in the road for ACN and I think this remains a great name on any dips. Deeper the dip, better the rip later.

However in the short term, I am now bullish on ACN with my LIS around 270. It is 300 now. My target on Accenture is 400.

I think names like ACN will be the new face of the AI race and several such new names will emerge.

If you want to receive such off beaten ideas every week in your inbox, consider subscribing and add me to the Daily reading list so I can be in your inbox every day with my thoughts.

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ES levels

My main ES levels this week will be 5497-5510.

Scenario 1: I favor some support coming in 5497 is tested and holds for a push higher into 5543.

My edge case for the week will be below 5497 or above 5563.

Additional scenarios may be shared for subs in chat room below.

On a side note, before wrapping up, I want to talk about my view on nature of trading and investing. When we are in a 9 to 5 job or work for another person, we are essentially following a script, or a formula. The guy who employs us has figured out something and that has been passed down to us as employees, as a recipe to follow and churn out predictable results.

Trading and investing does not work that way.

We, as traders, work for no one but ourselves. As investors, we are not following a formula but really trying to determine a hidden edge that has not been discovered by others yet. If it was discovered, the price would have already gone up. In case we think we discover it after others have already discovered it, the price will then collapse. This is a very important concept to wrap your heads around. I guess I am saying is that there is really no guarantee for any outcome. It is really very very random. This is just not true for stocks. This works in all sort of ways - like real estate and art for instance. Once you realize this and internalize this concept, this will make a major shift in your training as a trader. You will stop spending energy on being right, and start spending energy on finding ideas and risk management. In general, this is also a good mindset to develop when navigating in personal life and work. At end of the day, everything is changing, but at a slower pace. It is just in the 0DTE markets that things move exponentially faster.

~ tic

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