How Much Higher Do We Go?

Weekly Plan 5.10.26

If you ask 10 different people whether this market is in a bubble or whether current valuations are justified, you’ll probably get 10 different answers. Most opinions ultimately fall into two camps: one side believes we’re clearly in a bubble, while the other argues valuations are supported by rising earnings, expanding cash flows, and stronger future growth expectations.

The reality is more nuanced than either extreme.

To be clear, in the near term I still think this market has room to move higher. Could we see pullbacks along the way? Absolutely. But overall, I still believe the market trends higher from where it closed this Friday.

To understand how this eventually plays out over the longer term, you first have to understand what’s driving this extraordinary rally in the short term. And calling it extraordinary is not an exaggeration. We’re seeing companies worth hundreds of billions of dollars gain 10%, 15%, even 20% in short periods of time. Some stocks are doubling within a month.

Moves like that are rarely driven by just one factor. Yes, earnings growth is real. Cash flows are improving. AI and productivity expectations may very well justify higher valuations than investors were willing to pay in the past. But there are other forces at work too — liquidity, momentum, passive inflows, options activity, and speculative behavior are all accelerating these moves.

That’s why the “bubble vs. fair value” debate misses the bigger picture. Markets are almost never entirely one or the other.

What stands out most in this environment is the scale and speed of the moves in mega-cap companies. When some of the largest companies in the world add enormous amounts of market value in such short periods, it usually means investors are aggressively pulling future expectations forward, accepting higher valuation multiples, or simply chasing momentum.

And momentum itself can become self-reinforcing. Rising prices attract more capital, which pushes prices even higher, strengthening the narrative and encouraging even more participation. That cycle can continue much longer than most skeptics expect.

The key distinction is separating short-term market direction from long-term sustainability. A market can continue rallying for months — even years — while simultaneously creating lower future returns because expectations become too optimistic.

We’ve seen versions of this before in the late 1990s, parts of 2021, the housing boom before 2008, and even during the Nifty Fifty era of the 1970s. In many of those cases, the issue wasn’t weak fundamentals. The fundamentals were often strong. The problem was that expectations and valuations expanded faster than reality could keep up with.

That’s usually where the real risk emerges — when markets stop rising primarily because fundamentals are improving and start rising because investors expect prices themselves to continue rising.

One important difference today is that market leadership is concentrated in a small group of massive companies generating real profits and enormous cash flow, particularly in AI-related sectors. That makes this environment very different from purely speculative bubbles built on weak businesses and hype alone.

So this may not be a traditional bubble where everything is fundamentally broken. But it can still evolve into a valuation bubble if expectations, multiples, and growth assumptions become too difficult to realistically achieve over time.

Some prominent traders are already short several of these high-flying stocks, particularly in the semiconductor space, and as of this writing many of those positions — especially short-dated puts — are down 50% or more. On the other side, respected macro traders like Paul Tudor Jones believe the market could continue climbing for another year or two before the cycle finally turns.

Then you have the cable TV crowd confidently declaring that this bull market is unstoppable and that “this time is TRULY different.”

So who do you believe? How do you make rational decisions when even experienced investors and traders have completely different views of what comes next?

The answer is that markets are probabilistic, not certain. Nobody truly knows how long momentum can last or exactly when sentiment will shift. Even the best investors in the world are operating with incomplete information.

Let us zoom into the short term drivers of these moves and then we can see how this will pan out in the longer run.

In the short term, this rally is not without merit. Expected corporate profits are exploding higher. This AI technology is unlike anything we have seen before, and it will have far-reaching implications for everyday life, how we live, and how we work. So when you see memory stocks, GPU stocks, data center, connectivity, and infrastructure stocks surge 100% in a month, the market is simply rerating them almost in real time to account for this anticipated explosion in earnings.

Now, within these types of stocks, I do have reservations about a few. For instance, if you take companies like Samsung Electronics or Micron Technology, which are niche players in the memory segment, much of Samsung’s newly achieved trillion-dollar market cap has resulted from its dominance in memory hardware. That is where I become more skeptical, because there are significantly cheaper Chinese counterparts that can also supply similar products at much lower costs.

So when Donald Trump meets Xi Jinping next week in Beijing, perhaps we could see a “DeepSeek-type” moment for some of these memory stocks. Definitely something worth watching closely.

Then you have more diversified or more well rounded plays (for lack of a better term) like Intel— which I believe could still be cheap at 125! Remember, this is a stock shared by me here in this very substack as a long term play back when it was under 20 dollars. If you recall, this stock was trading 19 or so bucks, before its face ripping move. Now just because it has come up a lot, does not mean it is an automatic short— atleast not in the near term. This is why I am so hesitant to make bold calls about this rally not just in names like Intel but general market as a whole.

The markets just do not go abruptly from the 8th gear into reverse— they need catalysts. You need some sort of balancing.

Again— I think Intel remains a buy on pullbacks and I think this is probably headed higher into 200 dollars, assuming of course what I am about to describe below how all this ends in the long run catches up to it before it can ever trade 200.

As I said in my previous post, this is kind of a an uncertainty play but only that this time around this uncertainty is to the upside. No one wants to miss out on this rally if AI actually ends up being what every one is saying it will end up being. There is just too much going on with this new technology that the folks want to be a part of this.

Now, you tell me when this ends. For me to say this is the absolute top, like some others are calling it, I will be lying if I said I know. I simply do not know. None of my training and none of my tools of the trade are able to say if this is the top in near term.

Now this could this change very well next week— but for it to have changed my mind, I would have confirmed it with very specific signatures on the orderflow tape. Not without it , I cannot.

Bottomline here is I do not doubt this momentum per se. I understand that the profit and revenue expectations are exploding much higher and I agree to an extent why they are exploding and I think the companies are delivering on that promise — it is not like 2000 dot com where you have stocks doubling and tripling in a month due to silly intangible reasons. This thing is real and backed by balance sheets.

This is a good segue into where I disagree with the long-term prognosis or the so-called “promise of abundance for all” being promoted by people like Mark Zuckerberg.

To illustrate this point, I am going to share where I believe the next mania in the AI story will emerge: humanoid robots.

These so-called robots carry with them promises of immense riches and boundless possibilities, but let us examine whether this is grounded in economic reality or simply a fairytale.

The proponents and firm believers in the robot market present this still-infant technology as a replacement for cheap labor. They argue these are jobs no one truly wants to do — taxi drivers, strawberry pickers, warehouse workers, sweepers, janitors, nannies, nurses in infirmaries, and so on.

The companies promising these technologies have managed to raise billions, if not trillions, of dollars in funding from both retail investors and public pension funds, which at the end of the day are investing in the very companies aiming to replace their workers.

I am not even going to get into the merits or technical viability of such robots. The human form is incredibly complex and is the result of millions of years of evolution. The same human body that can open an email to read this text can, the very next moment, be called upon to perform a hundred other tasks seamlessly. This is not a question of whether robots will eventually be able to wash dishes, fold laundry, or take trash bins to the curb. For the sake of this discussion, I will assume they can. Give it five years, and perhaps they will.

The premise here is that to achieve this degree of dexterity and capability, companies may need to spend tens of billions of dollars developing these robots, costs which will inevitably be reflected in the final price of the machine itself.

So now you are potentially looking at a $100,000 robot capable of replacing human labor.

But how many people in the world can realistically afford a $100,000 robot? And will it truly be a one-time purchase, or will it evolve into something like the iPhone — requiring constant upgrades and replacements every few years to stay current?

The other side of this equation is that as markets begin to sense the inevitability of this “glorious” robot future, valuations of some of these companies could rise into the stratosphere. So if Tesla reaches a $5 trillion valuation — which by Elon Musk standards may even sound conservative — there may ultimately be very little room left for the stock itself to continue moving meaningfully higher. It already trades at an extremely elevated forward P/E multiple.

So the real issue becomes this: society spends billions in CAPEX attempting to replace low-wage labor with a $100,000 robot — and I am being conservative on pricing — which may itself need replacement every few years to keep up with the “latest and greatest” technology. In the process, these companies absorb enormous amounts of capital and become so large in market capitalization that, despite achieving extraordinary success, much of their future profitability may already be priced into the stock.

That is where the seeds of a long-term bear market may eventually emerge, if you follow the logic this far. I do not think we are there yet, but I believe we may get there sooner than people expect.

Now, predicting exactly when this happens is anyone’s guess. Maybe markets fall 20% tomorrow and some traders get lucky. But for those who are not so fortunate, confirmation matters. This is what I have been saying for several months now: when a true bear market begins, there will be very little ambiguity about it. Maybe you miss the first 5–10% of the move, but waiting for confirmation can save you from catastrophic losses trying to short stocks that are still in relentless momentum-driven uptrends.

Another note of caution: trying to trade this market purely through macroeconomic or geopolitical analysis may also be ineffective right now. A war could begin tomorrow and markets may initially drop sharply — only to reverse and surge higher again.

When I say that, I am not being complacent. I am simply describing the current character and stance of this market. At this moment, the market is being driven overwhelmingly by the AI trade. Everything else — war, valuations, macroeconomics, interest rates, politics — appears secondary in the eyes of traders as we deal with these markets in 2026.

If you do not believe me, here is a little thought exercise for you: META and TSLA right now are selling for almost the same market cap. The stark difference being in valuations. META sells at a 22 current PE. TSLA sells at an eye watering 400.

Do you really think this market care about valuations here? This is a not valuation issue— this is a narrative issue. META lacks the vision. TSLA is full of it. Atleast that is how the market thinks at the moment.

If I am right here, I think we will see TSLA continue to run higher towards 480-500 area and META continues to languish here. This market right now is firmly running with the AI fairytale. You can step in front of the freight-liner and find out, or you can let it take its course— let it balance a bit here and then make an intelligent short with a fixed risk on other end of the balance.

With this out of the way, let us look at some of the S&P500 emini levels at play here and some other interesting themes.

So what you had last week was some sort of short term liquidity release which was then quickly bid up to close the week at 7425. These are emini levels, for SPX levels please subtract about 25.

The key data points to watch for next few days are the payrolls on Friday, CPI on following Tuesday and then the President Trump Xi summit later in the week ahead.

These markets when it comes to the immediate time frames of next week to two I think remain overstretched and a little bit of steam released here is not a bad idea. I favor a bearish auction sometime in middle of next week to take us down to below more desirable levels.