War Could Re-Start Tonight.
Weekly Plan 5.17.26
Do stocks serve any real purpose anymore? And in the worst case, are they actually contributing to inflation? Will the FED Sacrifice Stocks to Save the Bonds.
A little dramatic open but I want to touch upon a couple of key Econ data and themes from this week.
I am not offering an academic study here, just empirical observations and common sense.
A couple of years ago, I looked at whether the 2022 inflation surge was caused by Biden, his policies, his predecessor, the Fed, COVID distortions, or the war in Ukraine. Yes, Ukraine clearly played a role, but it cannot fully explain what happened. As I said previously, the 2022 inflation was in large part caused by fiscal and monetary policies of 2016 to 2020. Are we there yet again now?
Today, many people are excited about the stock market rally. Millionaires are being minted in AI stocks every week. But the real question is this: if Biden-era policies had stayed in place and there had been no war, would inflation be under 2% today with stocks above 10,000?
Some food for thought there.
Growth clearly has not meaningfully picked up. If it had, we would likely see it reflected in other places too, including commodities, energy prices, and long-term yields. Instead, it looks like a large part of the stock market gains may simply be feeding into higher asset prices and inflation expectations. Most of the gains in stocks this year have come from a handful of stocks. This lack of breadth should be a clear warning signal for the overall market as a whole.
So then you have to ask: what happens if inflation comes back and the Fed is forced into another round of rate hikes? If rates move toward 7%, that starts to look like emerging-market or third-world-style bond yield regime, especially given the size of the U.S. debt load.
The reason real growth has not picked up much, in my view, is that much of the wealth effect from stocks is not translating into productive economic growth. Instead, it may be increasing inflation pressure.
Over coming several weeks and months this should present an interesting dynamic: since this inflation surge could now come in first half of the second Trump term, does he see thru this and acknowledges his actions may be a direct source of this or does he let the runway inflation train continue on to a much harder crash later?
That dynamic is the reason why I see long bonds, especially something like TLT, as a potential 30% to 80% opportunity.
I personally do not see a scenario where the adults in-charge let the US yields continue to climb and do nothing about it— they will have to act. And act fast.
I see a 6-7% long bond yields here in the US as a catastrophic 6 sigma event which no one is really prepared for. This is why I am calling for it to not happen at the first place. Not in near term.
This potentially means a broader long dated bond ETF like TLT is probably at or near a bottom here at 83-84 with a 10-20% MAE possibility.
Now know that for every 1% move in rates, TLT can move 15 to 16%. So essentially it is a leveraged bet on rates. Let us for a second assume that in the near term rates spike to 6%. This takes TLT down another 8 or 10 points which could present a compelling risk to reward in bonds.
If TLT is near a bottom and eventually moves back toward 100 due to disinflation or deflation, I can sell it there and potentially buy stocks 30% cheaper. If stocks keep going higher, I still do not see U.S. rates sustainably going above 7%. At that point, the country has much bigger problems because of the national debt. In that scenario, TLT may carve out a major bottom around 66–70. As mentioned above, roughly speaking, a 1% move in long rates can translate to about a 15% move in TLT.
In summary, investors need to ask why stocks are rising while bonds are getting crushed.
Is the bond market correctly anticipating another serious inflation wave ahead? Or is the stock market wrong?
Right now the President is seduced with a rising stock market. Yet, at some point reckoning will strike that perhaps some of these stock market moves are causing pent up inflation. When the rich get richer, they do not sell capital gains, they do not spend, they reinvest dividends whereas fewer and fewer dollars chase limited resources thereby leading to higher prices for everyone.
I think the U.S. situation becomes very dangerous if long-term yields clear 6% to 7%. If that happens, it may make sense to stay open-minded about 20- to 30-year bonds, because eventually the people in power will be forced to fix the problem, whether the president likes it or not.
Take a look at some other related markets… look at commodities, look at the dollar, look at oil prices. I think they clearly want to go up. The FED needs to act now before this problem becomes much severe. If you do not believe me, take a look at Gold and Silver. Not looking good. These markets clearly are sending a signal— inflation is headed higher and the FED will actually need to raise instead of cutting.
Emini Levels and some themes for next week
First off, I am not in the camp that thinks that a most of these AI stocks are in bubble yet but I believe a pullback is much desirable and probably round the corner. Now do know my views on the long bonds as well as oil prices as shared above— I think these are unsustainable related markets and something needs to be done to diffuse this tension.
At the same time, I think the AI trade remains viable. There may still be another 10-15% juice to squeeze here if we do not see a geopolitics shock in near term.
Several folks asked me for it so if I were to come up with an AI specific list of stocks I continue to like, it will look like below—
MSFT with line in sand at 350 (now 420).
META appears reasonable near 600 but I am prepared for a decent sell off if the general markets take a turn south.
ORCL— this was shared a few months ago but I continue to like it here at 190.
MU— yes, I still like it at 700.
AKAM- it is pushing 150 now but it remains a buy for me on any dips.
AMZN— this one if you recall is an older orderflow stock still looks robust at 250.
MRVL.
Nokia— now this is already up a lot when I first shared here at 3 bucks to 15. So do not be surpassed if this takes some heat but overall I still like it to push into 20s.
AAPL— Once AI goes mainstream, I think AAPL has a role to play. This is a sleeping giant, I would not necessarily dismiss AAPL as an unc. I still like it at 298 and cheaper the better.
Within the semis— INTC remains a formidable choice for me at 100 but at the same time with NVDA earnings looming, if you are too bearish on NVDA here at 224, I warned just a few days ago near 240 that it is extended. But if it were to approach 200, I think it is a decent play still. SMH is heavy into NVDA at almost 20% weight. May be NVDA if it dips takes SMH down with it too but at any rate, I think 500 on SMH remains decent support if I were wanting to avoid any single stock risk.
Uber— this would be one of those first real world use cases where AI is being used profitably. If you think even half of Tesla’s market cap today is owing to the upcoming robot taxi, then I think Uber here at60- 75 bucks is a a steal that sells at 95% the valuation of TSLA, and at the same time making 3 times the profits! I think this could potentially be a 120-150 dollar company if not more.
Now with these memory stocks, last week I did warn about Trump’s Chinese visit impact on these stocks but I do not read too much into it and if Micron were to sell into 600 that makes it that much better.
If you notice some prominent names are missing in this list. Folks may think how can he have an AI centric list without this and that name. My rationale is simple— I do not even consider any of these top ARKK holdings as AI plays.
I mean look at ARKK. What an unmitigated disaster it is! Real life changing companies are creating innovative solutions whereas she is holding on to Roku, Shopify, Crisper, Coinbase and calling these innovation! What an utter disaster.
With the SpaceX IPO in next few weeks, ticker: SPCX 0.00%↑ , this is a company with like mere 6-10 billion in sales and will soon go to list stocks at 2 trillion dollars market cap.
What these type of stocks do is suck liquidity out of the general market as momentum punters sell winning stocks to raise cash to buy the new IPO which could show them an instant 20-30% gains. This is a real risk for the stocks especially the high flying SOX and memory stocks in next few days to weeks. See my blurb below on how this could play out.
I became bearish on this ETF many years ago at 130. It dropped to 30 then. Hasn’t since fully recovered. Never will.
Anyways, I digress…
These 10 or so at this time will be my TOP 10 AI armageddon list even though they are extended, even though I shared most of these when they were 80-90% cheaper. If I never ever owned a share of a NOK at 3, an AAPL at 192, a MU at 80, then I think I wanna wait for a decent 10-15% pullback as the market digests the inflation narrative in next few weeks to months. In fact, deeper the pullback better it is, as once the FED manages to save the long bonds, assuming they will fight back against inflation, I think these stocks could swiftly recover their losses.
Now I am not factoring in the war restarting tonight— the market while looks nonchalant at 100 oil may not feel the same way if oil were to head into 120 overnight. No one except those with direct line to him know what Trump will do next. He could attack Iran tonight and make peace Tuesday or vice versa— absolutely no way to know. So take that with a grain of salt. But overall, any drop in these names, I think they still could remain supported for another few drops of juice to squeeze here. Read my blurb about the general market below to for my views on general market dynamics and how it may affect any of these stocks in coming few weeks and months. Kind of important.
If it is of any interest, I can keep this list updated every couple of months as I readjust my own stocks. Let me know.
Levels for next week
If you recall from my post last Sunday, I expected resistance to kick in at 7480 on the weekly time frame. This level was briefly breached and I expected this to hold on Friday but we actually opened gap lower below 7480 and then could not take it out at all during the cash session.
This Friday’s session is what I will call a beginning of a balancing process. Coming in at expected weekly resistance could be a little bitty red flag.
So now to start off the week, I could simply copy paste my levels from last week and call it a day.
And that is exactly what I am gonna do.
I do still expect to see support come in at 7350 because I am assuming that the overall exposure of lot of so called “professionals” and funds is on the low side with year end approaching in 6 months from now. If I am right, then we could continue to see support come in on pullbacks.
At the same time, you will now naturally have anxiety due to higher oil prices and long bond destruction. With Trump, he can be capricious. So as we wait for the week to start we may be thinking war tomorrow but then he can do an about face on Tuesday and lo and behold we have a signed deal with Iran. It is anyone’s guess what his next move is gonna be so I won’t even bother with that.
Scenario 1: At start of the week, what I am watching is if we have any takers above Friday highs near at 7500 at all or not. I think until overcome this zone could continue to provide resistance.
Scenario 2: 7350 I think is where rubber hits the road. While I see this as weekly timeframe support, a Daily close below could lead to a test of 7223.
To summarize: 7350 could remain supported until it’s not. I will expect a deeper pullback here if 7350 were to fold. Can be confirmed via a daily or weekly close below. Until that breaks, we can lean on resistance near 7480.
Other themes
MAMA
Liking the price action here, and something different from run of the mill AI and chips and what not.
May be a little extended here but I think this is probably headed to 40 to 50 dollars. It is 14 bucks at the moment.
This is it for the week but I do want to spend a few minutes to talk about some foundational values and habits that can improve our trading if done in earnest…
One of the most useful things you can do as a trader is understand what is actually driving the current market. Not what your favorite online guru says is driving it. Not what some colorful chart with seventeen indicators is whispering to you. What is actually causing the flows? Where is the buying? Where is the selling? Who is trapped? Who is in control?
That sounds simple, but simple is not the same as easy.
In many cases, becoming a better trader requires a long and painful process of unlearning. You have to throw out a great deal of nonsense before you can build anything useful. And unfortunately, thanks to the modern internet, there is now an industrial-scale production line of trading nonsense.
When a new trader starts out, she naturally looks for guidance. That is perfectly reasonable. The problem is that she often ends up in the hands of trading academies and online gurus whose main business model is not trading, but selling trading courses.
For the modest price of only $10,000 to $15,000, they will generously teach you how to draw triangles, inverted triangles, bats, butterflies, haunted-house patterns, MACD divergences, RSI rituals, and other assorted financial astrology. And once you master these sacred drawings, naturally, untold riches will arrive at your doorstep like an Amazon Prime delivery.
Except they usually do not.
In fact, the more time many traders spend worshipping charts, indicators, and online furus promising lamb but delivering mutton, the farther they often get from actual trading profits.
Now, I am not claiming to have discovered the holy grail myself. If I had, I certainly would be sailing away into the sunset off the coast of Amalfi even though I enjoy writing and sharing my market views. On balance, my calls turn out to be ok. Our winners far outweigh our losers and sometimes we find ourselves in tremendous opportunities— but there is never a guarantee that anything will work out.
Most of my work contains very little traditional technical analysis. I use order flow, which is really just a glorified time and sales window, price action, correlated markets, and context — which is another word for common sense, a commodity in very short supply.
And even with all that, I would never say I have a 100% foolproof method. Anyone who says they do is either delusional, dishonest, or selling you something.
The good news is that you do not need a 100% foolproof method. You do not need a holy grail. If you have a method that wins 50% to 60% of the time and lets you risk $100 to make $200, $300, or more, you can do perfectly fine. The key is not perfection. The key is having an edge, managing risk, and not doing obviously stupid things repeatedly while calling it “discipline.”
The reason I bring this up is simple: I want our people to win. And one way they can win is by learning to recognize what works and what does not.
Take Friday’s auction as a classic example. We gapped down quite a bit in the morning, but then we had several long setups around the 7440 support level I had shared earlier in the week.
When you see a weak open like that, the natural reaction is fear. That is normal. Nobody feels like a genius buying after the market has dropped more than 100 points overnight. Your stomach gets involved, and usually your stomach is not a very good portfolio manager.
But as the day progresses, you notice something important: we are not making new lows. We are sitting at a key order-flow level and finding support. At the same time, the day begins to look like a balancing day, not a trend day.
That distinction matters.
And you can see all of this just by observing price action. You do not need moving averages, bats, rats, sacred geometry, or an indicator that looks like it was designed by a deranged Christmas decorator. In fact, on a day like that, relying heavily on moving averages could have been a disaster.
Simply put, on a balanced day, you do not have higher-timeframe traders aggressively opening new positions. You mainly have day traders buying and selling inside a smaller range. The market is not launching. It is not collapsing. It is balancing.
Another very useful thing you can do is learn from mistakes — both your own and other people’s. This works in intraday trading, and it also works in longer-term investing and swing trading.
So what are some of the common mistakes we all make from time to time?
We chase.
Often, we find a stock we like. We say we want to buy it when it is oversold or when it is quietly being accumulated. But when the opportunity actually appears, we freeze. Fear takes over. We do nothing.
Then the stock starts moving. We still do nothing.
Then it enters the markup phase. Suddenly everyone is talking about it. It is making new highs. People we know are buying it. Social media is excited. Now, finally, we “feel safe.”
Of course, by then, many of the people who bought it 50% to 80% lower are happily selling their shares to the newly confident crowd.
Now, there is nothing inherently wrong with buying a stock at all-time highs. Momentum can work. But you must understand a few basic things about momentum stocks.
They can drop 30% to 50% out of nowhere.
That is not a bug in the market. That is a feature.
Let us say you buy 100 shares of NVDA at $100. If it drops 50%, you are looking at a $5,000 loss.
But if you wait until everyone loves it and buy 100 shares at $240 or $250, now the position costs you $24,000 to $25,000, and the same 50% decline creates a potential loss of $12,000 to $12,500.
Same stock. Same share count. Much bigger risk. That is what happens when you confuse popularity with safety.
My point is this: when a stock first shows up on your radar, before it becomes wildly popular with retail traders, you can test whether your buying is actually working.
For example, if you buy a stock like Nokia at $15 and it drops to $12 or $13, I would personally get out. I would not sit there romanticizing the loss. I would wait for signs of buying on the tape near $12, or I would wait for it to reclaim $15.
Personally, I do not like averaging down into losers. That is how small mistakes become large mistakes, and large mistakes become “long-term investments.”
If I cut a loser at 20% to 30%, I free up both capital and mental energy. That money can go somewhere else — maybe into something that has the potential to become a 100% or 200% winner.
Trading is hard enough without dragging dead money around like emotional luggage.
The goal is not to be right all the time. The goal is to stop doing the dumb things that prevent you from making money when you are right.
This is it for now. Have a great week ahead !
~ toc
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