Trade Alert: Stop Trying To Call The Top
Do you want to be right, or do you want to make money?
Stop Trying To Call The Top
In a post last week, we pushed back against Goldman’s warning that euphoria about AI and momentum stocks was cracking.
Our point was that the AI buildout still looked rooted in real demand, real revenues, and real physical bottlenecks—not just narrative demand.
The Thesis Was Intact
Then last week happened. Space X filed its S-1, Nvidia ( NVDA 0.00%↑) reported record earnings, and some of our less-obvious names in space…
And less-obvious AI names soared.
Navitas Semiconductor (NVTS 0.00%↑) wasn’t the only less-obvious AI name moving last week. The broader point was that the AI trade is still spreading through the physical supply chain: memory, power, photonics, cooling, sensing, storage, logistics, and semiconductor equipment.
Bubble Calls Are Easy
Over the weekend, Zero Hedge highlighted a note by Bank of America CIO Michael Hartnett calling the AI buildout “the biggest bubble since the railroads”. That calls to mind a point we made in our Trading Spaces post on Saturday.
From our post:
There are two main ways to make money while writing about finance. The first is to preach doom. Say America’s debt is unsustainable, the “petrodollar” is about to collapse, Iran is about to replace the U.S. as a superpower, etc. There seems to be an insatiable demand for that sort of content, and maybe you can sell ads for precious metals if you get enough traffic.
The other way is to generate alpha. That’s what you see above. You can see more examples of it in this weeks Exits post.
Hartnett surely gets a generous salary from BofA, but the general point holds: you can get a lot of attention by calling tops and predicting doom. Back to our post:
One prerequisite for this is to have an open mind. The second prerequisite is to react to what is actually happening, not to your own hobbyhorses. Space and the AI buildout have been obvious themes for a while. We were writing about space names a year and a half ago, and we have objective sources of alpha, including Portfolio Armor’s Top Names, that keep us in these themes.
It’s been more profitable than waiting for the sky to fall.
What’s Actually Happening
What’s actually happening now is an enormous infrastructure buildout driven by real demand and real revenues. That doesn’t mean buying every AI-related stock at any price. It means looking for places where the theme is still working, the technical setup is constructive, and the options market gives us a defined-risk way to participate.
That brings us to today’s trades.
Adding, Not Chasing
We’re making one exception to our usual rule of not mentioning current trade ideas in the free section, because it helps illustrate the point. We already have an open trade on iShares MSCI South Korea ETF (EWY 0.00%↑), tied to the AI memory theme. That trade is now deep-in-the-money and capped well below EWY’s current price.
So we’re not chasing EWY here. We’re adding another farther-out trade because the thesis is still intact, Korean memory stocks are still crushing it, and EWY now passes our technical screens again. As for the FUD about China flooding the market with memory chips, see the X post by one of our Market Watcher accounts below.
That’s the difference between trying to call the top and trying to make money.
Today’s alert includes that EWY trade, plus two more defined-risk trades tied to the physical AI buildout.
Today’s First Market Watchers Trade
South Korea / AI memory proxy theme
The security is iShares MSCI South Korea ETF (EWY 0.00%↑), and our trade is a hybrid combo consisting of these four legs:
