Trade Alert: The Great Rotation
From AI hyperscalers to hometown banks
From Hyperscalers To Regional Banks
In a post on Zero Hedge today, I laid out why the next big turn in this market may not come from another CPI print or Fed presser, but from a single line in an earnings release: an AI hyperscaler announcing a capex cut. Michael Hartnett has argued that the entire AI trade now rests on ever-expanding capex budgets; once that growth slows, the spell breaks and leadership rotates away from mega-cap, asset-light winners toward more cyclical, credit-sensitive areas of the market.
You can already see hints of that rotation in small-cap financials. As J.C. Parets pointed out, the small-cap financials index within the S&P 600 has spent nearly a decade building a base and is now pressing against the top of that long-term range.
These are regional banks and lenders that usually sniff out trouble early when credit is deteriorating; they don’t break out when the system is cracking, they break out when credit conditions are quietly improving beneath the surface.
What makes this more interesting for us is that the same theme is starting to show up in our own tools. One restrictive screen we’ve been running with Chartmill—PEG caps, strong Piotroski F-Scores, and high technical and setup ratings—currently returns only ten U.S. optionable stocks, and three of them are small-cap banks. When the macro backdrop, the charts, and the quant screens all start pointing to the same, long-ignored corner of the market, that’s usually where we want to focus our next options trade. In the paid section below, I’ll walk through a hybrid combo on the strongest of those banks.
Today’s Chartmill Trade
Regional bank / rate-cut beneficiary theme
