In mid-March, Shrubstack issued a “Max Stupid Red Alert” against owning Ponzi and in favor of owning Hard Assets.
Since then, the Nasdaq is down 8%, Semiconductors are down 13% but Energy is up +3% and Miners are up +5%.
What was it that triggered us to issue the warning? Was it “AI Woodstock”? Was it SMCI’s inclusion in the S&P? Was it the stupid meme-coins like Elizabath Whoren? Or was it the “Dogwifhat” on the Sphere?
Tops are a PROCESS. And all these milestones just added to the process for a TOP formation.
Diary of a Madman II
Here’s how I would describe the last 2 trading weeks:
“Pre-market pumps” in the Equity Futures and subsequent “regular-market dumps” in the Cash Market
Confusing Price Action that most likely led the Monkeys to CUT their protection after the first 2% drawdown
Below is my annotated “Diary of Madman II”:
When the hot CPI came last week, I was surprised that the market ramped the next day because of a “cold” PPI with made-up data (see Thursday in the previous piece. It was really a shocker).
Then this Monday, we survived WW3 and the futures were ramping even though Apple / Tesla had bad news. “WHY? Better sell some stocks”, I told myself.
It was a slow bleed into Friday until we got a nice flush due to Nvidia and SMCI (more on this later). At this point I got out the shopping list.
Here’s my guess: the Monkeys spent the last month like Frogs in Boiling Water, getting used to Max Stupid behavior, reducing their hedges (“they don’t work anyway”), and putting all their cash to work (“cash is trash!”).
The CFTC positioning data came out on Friday and confirms this view:
"In equities, traders bought 137k S&P contracts (!), the biggest weekly purchase since June 2020. The position is now long 74k contracts, the biggest long in nearly two years".
What could possibly go wrong!!!!
NVDIA and SMCI
I have written extensively on SMCI as an event-driven trade, calling for a Top once it got included in the S&P (“SMCI Index Inclusion - Part 2” and “Max Stupid Red Alert”) and said that “this can drop like a stone to $600-700 in a few months”. The stock was at $1,200 at the time, only a month ago, and it closed at $713 on Friday, a 40% drop.
Regarding Nvidia, I have written “A Boomer’s Review of Nvidia’s results - part 1” and “Contagion” where I draw on those pesky 1999 parallels. This was triggered by that “monster” daily candle on March 8th, which, at a $200bn swing, was equivalent to the GDP of Greece. I noted my checklist to tell when the end of a monster Rally is near:
Volatility increases!
Parabolas start to wobble!
The trading range widens!
VOLUME picks up!
On Friday, we got another $200bn daily candle. Go through the checklist above, it checks out …
Why did we get this flush? This week we learnt that Druckenmiller sold his Nvidia position. Then SMCI didn’t pre-announce results, which they usually do when they are doing well. It continued when semiconductor guru “fabricated knowledge” tweeted out that one can get Nvidia’s H100 GPUs from SMCI in China, which would imply that SMCI broke export controls.
But the final blow came from this week’s Barron’s Cover. RIP