The banks were up 1.6% this morning while the NASDAQ was down almost 2%.
With all due respect, it’s getting downright insane when you’re buying financials.
Think about who’s holding the debt behind AI. If companies like CoreWeave go belly up, who do you think is holding a crapload of those notes? It’s the financials.
Apple Is Trading Like A 10-Year Treasury Right Now
We’re trying to rotate our way out of this by any means possible. Healthcare is ripping, and staples are getting bid. So is Apple.
Apple is like a bond right now. I know that sounds weird, but until they screw the proverbial pooch on earnings, buying Apple is like buying the 10-year.
The money is getting out of software, and it’s getting out of semiconductors again. Bonds spiked too, and people will tell you it was the PCE data. Nobody gave two craps about the PCE data. They’re moving to bonds because they’re getting the hell out of software.
Why One $5 Trillion Stock Outweighs 250 Others In The S&P
This is reminiscent of the action at the peak of the NASDAQ in 2000. It’s a different marketplace, but back then, people believed the rotations were going to save the Dow and the S&P.
That’s impossible in this market. Nvidia is a $5 trillion company, and over 50% of the S&P doesn’t even add up to $5 trillion. So Nvidia selling off matters more than 250-plus stocks in the S&P.
The advance-decline line, the count of stocks going up versus stocks going down, is stellar this morning. We’re rotating with everything we’ve got, and it still can’t hold the S&P together.
Why I’m Betting Against Banks That Rallied 1.6% Today
So I took a contrarian position in the Financial Select Sector SPDR Fund (XLF). I bought cheap, short-dated puts, a bet that the banks come back down.
XLF doesn’t go up a dollar in a day very often, and it was already on the edge of its expected move. I was laying in bed at 4:30 this morning looking at it, thinking, “Damn, that thing is up there.”
If I lose a couple of bucks on this one, I’m still going to argue it’s one of the greatest risk-reward trades I’ve been in in a long time.
Pocket Profits starts with the expected move, too. When a stock closes outside it three weeks in a row, that’s my signal, and the spread I buy has its floor and ceiling set before I’m in. Take a look at Pocket Profits.
To your success,
Don Kaufman
P.S. Microsoft is the wild child today. It priced almost a $30 move on earnings, and after a good report, it’s down about $7. If it gets to down $15, the dealers’ hedging can shove it a lot lower in a hurry.
