AI Stocks Are Breaking! Wall Street Isn’t Telling You Why

[00:00:00] Speaker 1: Absolute carnage in the market today is the Nasdaq's down 3%. S&P futures are forming a really nefarious pattern here. We have to be very careful of this. We're going to get into exactly what it is. And it's actually the highest candlestick probability pattern in existence. It was risk off today as the Sox Semiconductor Index broke its 500. And that is the level that we must watch when we watch this 500. That is the put wall. We have held that repeatedly. And with that, we can see this major break and it looks like we're heading for a retest. There were several major events that happened. And what we're going to do is go over what they were and dive into it and tell you what to look for tomorrow. Those traders are reacting to the institutional levels. What we're trying to get you to do here is to know what they're doing ahead of time. Subscribe, click all notifications. What we go over here is timely by hitting the bell. You don't get it after retail is already in. The important thing is you get the information, education that you need. Subscribe. Let's get to it. In the strait, you had three ships hit mines overnight. Military action risk is rising. We can see that we are watching the embassies cleaning out or it varies between cleaning out and being told that they may have to clean out. There is talk last night of a US-Israel strike right after the midterms. I don't know why you would telegraph it, but whether it's rhetoric or it's unclear, we don't know. crude has a bid in the market. You can see that US tag multi-year highs in the morning. The one thing that a lot of people are not focused on what's happening in Europe, and it's not so much the uncertainty, but it's how it's affecting their bonds. The French-German 10-year spread, it's widening. You're at one of the largest levels you've been at years, and we're going to talk about that because that can actually have a similar effect to what happened with Japanese yen, and we'll get to that. Then last night, you had earnings. Earnings last night of Meta and Tesla and LAM, and this is why I wasn't able to do a video last night. We were too busy listing these calls and trading them, but you had a strong quarter on Meta. The operating earnings missed. It was pretty bad. The real crux of that was that one state hit them with $25 billion, and that was New Mexico, or maybe termed New America. But what's important about this is that that was after the call, and then why this affected it, we'll get to. But it's important to note that that's a big deal. Tesla cut CapEx. They are the first company to cut CapEx. Musk was negative versus the SpaceX call, and everything got extended out, and all these timelines got extended out, and we'll explain why that's important to the technology trade. LAM Research, revenue-guided lower end of the range, and that added to it. On top of that, AI, China, on the Hong Kong exchange, there's a company called Minimax, which is a frontier LLAM, and that cut underneath its IPO price and was down 6% overnight. Now, if I have the time, I like doing it like that so you can see what the core issues were, and there were a lot of issues that I think are very important and we have to cover. But most important, I'll do more of a deep dive on Saturday. So as always, subscribe, click on notifications, because some of this I want to cover for tomorrow so that you're prepped. So our 500 put wall is right here, and we broke that. And the last time we broke that was in here, and we can see how we came down pretty hard, and I think it's pretty much a foregone conclusion that you have to undercut this at some point. I don't see how that doesn't happen, and Western Digital After Hours is giving it all the fodder that it needs, and we'll address that as well. But when we look at what we have here, we had every opportunity to hold in this area, and we just didn't. We didn't hold. Even the proprietary breath indicator I used yesterday actually gave me a buy signal on this, like, oh, hey, we're finally going to hold. We're closing above everything. They're broadening out. And that's what made this drop so much harder, because people were actually getting long in here. Investors started buying into this area. So then when the news hit and it came out the way that it did, this is what happened. Tesla is the first company that actually did the cut. Now, we can talk about Tesla and why they did what they did. For me, Tesla was a very easy one to trade today. You can actually see where it broke. I just marked it off because I was looking at the RSI aligned with it. I'll show you on the five. It's not rocket science. My things are different than yours. My RSI settings are different. So when you see them, they might not align with yours. I'll just tell you exactly what they are. It's not some super secret. 15 open, high, low, close. And I use a fast trigger on days like this. So it's a 15 EMA, open, high, low, close. So you can see right there where you cross over. And at the same time, I have this proprietary cloud I use, and then you'll see it change colors. But in here, we bought a bunch of puts. And I just bought them to come down to 70 in case we've reversed because the market looked weak. And we can just see how that worked out today. And it was just an absolute, you know, implosion. So those puts did pretty well. But the point of this, besides like those kinds of speculative trades, is he was in a position here where I think that retail felt like he was kind of sandbagging. But the problem that you have to take into account with semiconductors is if this is a time, let's mark this as 2027. And let's just say that we go out to 2028 here. And we'll just mark this line for a second so you can understand the issue. If you're here and you're expecting memory prices to ramp up because everyone's going to have a robot, right? You get a robot. I get a robot. We all get a robot. And then all of a sudden you're told that, hey, you're a year out before you're going to get your robot or we're going to make robots. Well, that's a pickle. And then all of a sudden, what you think of a bottleneck in memory that starts to dissipate because the numbers that you have for these robots, optimists, all of a sudden they go away, right? Now they're pushed out. So that demand gets pushed out. So that tends to weigh on these kinds of companies. And that's that was one nail in the coffin yesterday, for sure. What happens with Tesla here? You know, it's a really good question. From my standpoint, I think the goal here is to let it fall and then pick up the pieces after. You really look like you're going to get back to that 350 level. From my standpoint, you've got a gravestone on the top of the chart. Maybe it holds here. Maybe it doesn't. But, you know, as far as high beta names go, you tried to break out and you can see your gap here. You've gotten above it a couple of times, but I think you have to come down to that 350 level. And this all, it all connected. It was like a perfect, it was literally a perfect storm last night. The thing with Meta, and we did add a really nice trade on this after hours last night. And listening to these conference calls, for those that always ask me about, hey, how do you learn about the fundamental side of the market? And that's what's driving us now. It's macros and fundamentals. And you can see that. You can see where the 10 here is. We'll cover it. But if you go and just drop it like it's hot here and you put a VWAP right when they came up with earnings, it's not really that hard to see how this played out, right? And then you can start seeing the turn. So in this little area here, there was a couple of things that clicked and we actually bought right here and traded it up. I'll show the live trade. I will definitely show the live trade on the deep dive on Saturday. And so I'll give you the steps that you can use. You can use it for yourself. And then all we're doing is scaling out. And then your call wall was right up here at 750. And then from there, all we did was just watch. And usually I sell into it, but I was down to not as much as I wanted. So I waited for it to undercut. And then once it undercut the doji, that was pretty much the end of it and it just blew it out. But this call actually went well until he started taking questions in here. First, the CFO put everybody to sleep and this is him telling how great everything is. And then the CFO talks about how they're going to make it happen. And that's usually when everyone falls asleep and goes, oh, wow, this is going to cost a lot of money. The questions that he got was all about implementation of agentic AI. And it went over like a lead balloon. Like, how are the banks going to let you in? And he started hemming and hauling and using words like, well, they're going to be frontier banks. Like nobody wants to be a frontier bank. You know, nobody wants to hear, wow, I really hope my bank's on the frontier of AI. You just want to know that you're okay. So I think that went over kind of like a lead balloon. But really what hurt it was just later. And you can just start seeing how this thing just starts falling absolutely apart. You can actually see it if you go on the 24-hour chart. And then all of a sudden news starts coming out. And then from there, it's just an absolute dumpster fire. That $25 billion is one state. That is not every state. So all these states that are lined up, if they start getting together, they don't have this in reserves. They don't have that kind of money in reserves. There's not hundreds of billions of dollars. And I think there's eight states. And the first salvo is $25 billion. So the amount that's going to go into this is absolutely staggering. And the reason that you care about this is because that could slow CapEx spending. And if that slows CapEx spending, like we showed from 27 to 28, right? If you're 20, 27, 28, and it gets pushed out, well, there goes your bottleneck. There goes pricing pressure. And all this stuff is connected. And then on top of that, you had LAM Research last night. Now, LAM Research, it actually looked today like these things were going to hold and gap fill. And that's not what happened. But what's so important to me about these and the way that they were acting today is they look like they wanted to go. And then it just hit a point where it just faded. And I mean, we all saw it. But the thing about it for me was they came in and they came in the low end of their guide. And you can't really come in on the low end of your guide if you told us how great everything's going to go here and you raised your guide here. So you're coming in the low end of your guide and nobody wants to hear that. Now, 39% of their business is in revenues. 39% of their revenues is NAND. And you'll know NAND in memory as Micron, as SanDisk, right? So why are these names down? Well, why aren't we having this huge build if there's demand there? And so that got extrapolated out in the semiconductors. See, once you start understanding how this is all connected, it starts making a lot more sense. So after hours tonight, you have Western Digital and Western Digital's talking about their spending and their quarter was good. Let me be really clear here. Their quarter was very good. Does it look like it? No. Because when you start selling and you have these issues and you have some macro issues out there right now. But when you have these issues, it's basically just risk-off. And in here, the key word to not say anymore is called neocloud. Once we start talking about neoclouds and demands from neocloud, and it's good because we have enough capital. Nobody wants to hear you have enough capital and you know how to right the ship. These are not the words to use. So everyone's like, oh, you said the word neocloud. So once that came out, that was it. And that was pretty much the end of it. But to be clear, they raised revenue. They raised guidance. And this is what you're dealing with. And this is what happens when you're in environments like this. And it's really important. It's not fundamental driven. It's not technically that's driving it. Technicals tell us what? Technicals tell us when we may get in and when we may be successful. But you have to understand something. Every trade you do, you know, they're coin tosses and you're fighting for inches. You know, the best traders in the world are at 60%. Anyone that's telling you they're doing better than 60% over like years for runaway screaming. So when you see something like this, it's important to get this. You have a macro issue that's out there where you don't understand how long demand is going to be or how strong demand is. And that bottleneck appears to be going away a little bit. And that is what's weighing on us besides some geopolitical issues with Iran and what's happening in the bomb market, which is a real pickle. And that's why you're seeing value take off. But so we're going to focus on the macro side in a second here. But the most important thing about this is understanding that when you get in this kind of environment, unless you're perfect, you're going to fall apart. So take, for example, BE. Now, BE's call started at five o'clock and you can see from five o'clock on the stock's doing very well. Earnings were good. Revenues were good. Guide was good. Margins came in line. Stock's down. Why? Because people are looking at it unless you're going to absolutely crush and we'll have to see what they say on the call. They're just going to get out and then they're going to ask questions later because nobody wants to take the risk because you're going through a risk off scenario. And you can see that. I'll show you that through VU. Before we go any further, divided by VTV, and then it'll start making more sense to you. Now, I like connecting all this. And it's why I always tell people when they subscribe, like these videos, I never take them down. So you can go back to August 8th video when we talked about this. And you go back to Saturday's deep dive, which would have been, geez, I guess it would have been on the 10th. And we talked about this where this is the open AI when open AI was slowing down. And everyone's coming out and going, no, Financial Times doesn't know what they're talking about. They're going to retract the article, all that nonsense, right? Instead of just reading the article and saying, hey, these numbers are way off compared to what they were talked about, which they were, you know, they reported July numbers of 40 billion. And then when they showed the people in September, they were 30 billion. When they said they were going to do $100 billion run rate by the end of the year, they showed the investors they're going to do 70. 70 is less than 100. 40 is less than 30. Like, you know, if you just deal with reality, instead of trying to make it better, you'll do better. So you can see how we acted in here, that other red dot right here, that is anthropic when they came out and everybody saw their stuff. And then you can see how that went. So they are buying value. And you can see that now that is one of the reasons why they are switching and they are buying value. And to be clear for tonight, I'm going broad, I will go deep Saturday, we'll get to it. But you can see the 10 year broke 5%. And you can see how you're sitting in here. Did you get a piece of economic data today that told you this that was there? No, right? It's a rhetorical question. No, you didn't. The important reason why this happened and why it's so significant is very clear. And the most important thing that I can say about it is this, that when you start to see this kind of behavior, this is recessionary fears. This is systematic risk to the market fears. This is, do we have something out there that happened like August 5th, 2024? And I'll show you what I mean by this. So if I take the France 10 year, we all know what's happening in France right now. And that there's a bunch of uncertainty around France and their ability to pay and the unrest, take the unrest and put it aside. Just pretend that all you care about is the economy and what the economy is doing and France's ability to pay debt. And you can see that you're now at a 5.08% yield. And that is a pretty high yield for France. But I mean, you can go back and say it for yourself. I mean, you can see when was the last time that you were at a yield like this? You'd have to go, geez, I don't even know how far back this thing will go. It goes into the 80s. But you'd have to go back to the great financial crisis to find a yield like this. So it's a pretty high yield for them. But it's not just the yield that's doing it. It's the speed in which the yield is happening. That is really the crux of the issue. And I'll give you an example what I mean by that. So here is Germany. And here's Germany's 10-year. And you can see what's Germany's 10-year doing. Germany's 10-year, they are buying that and they are selling France. And so you're like, well, that's good that they're doing that. The issue is that there is a massive trade-on very similar to the US dollar Japanese yen trade. And what they're doing is they're buying one bond and they're selling another. And then they're booking basis points. So if you take France 10-year and you divide that by DE 10-Y, you're going to get this and you're going to get a spread. So picture very similar to the Japanese yen trade. You put this trade on, you make basis points, you're levered 16 to 1 or something insane. The money that you make off the spread of those two yields, right? So let's say you sell one, you buy the other, you get that interest, you lever it up, you take the money from the interest and you go and buy US equities. This is pretty much a pretty standard carry trade. And it's fantastic when it works. When it starts to unwind, you start to get moves like this. And so this becomes a systematic threat to the market. This is something that no one's talking about yet. It started to get picked up a couple of days ago, but it's a real issue out there because when this unwinds, you can see extreme moves in France and in Germany. And that concern is in the bond market. That's why the bond market are one of the reasons why the bond market is moving the way that it is. And that's going to lead you into value names. And so when that drops, that's why you're seeing things that are linked to a treasury yield rally. No different than when you go through anything else. If you went back and looked at home builders down here, I'm not really sure how far back they'll go. Let's see if they'll go back here. And I'm not saying we're in .com, but no, they won't go back that far. But I'm not saying you're in .com, but it's very similar. Housing had the biggest boom ever for years coming out of when tech came in. And home builders were just, they were like the easiest trade out there because they were trading at single digits and they were trading at book value. So you're starting to see home builders peak up here. So things like Nail, that's doing exceptionally well today. KBH, you've been watching Berkshire, they've been doing exceptionally well. Flanair, I own, it's doing exceptionally well. So they're going to start buying the home builders because rates are going to drop. And so people might think about playing the mortgage side of the market, not really interested and more interested in the home buildings and the hard assets because they look for value. That's why you're seeing names like Harley Davidson absolutely explode today. That's why names like Berkshire, just disclosure, I recently bought Berkshire, we'll use B. That's why Berkshire is breaking out like it is. I think we're up 10 on the trade. And you're seeing it, you're seeing it in Travelers, HIG. Like you can see all these names. They're all setting up and they're all breaking out. Brown Brothers. Well, Brown and Brown is what they're called. But if you take a look at that, that's where the money's going. The money is going into value. You can see it in Southern Company. You can see it in Duke Energy. So these were all things we talked about two weeks ago. And then if you go and take a look at when did they really start moving? Right around October 8th, when you started flipping from value to growth. Really important concept to get, guys. So what does this mean for us if we go and take a look at the market? Let's get rid of the lady that's just seen her portfolio completely implode. If we take a look here, you have to start thinking about where we're going to hold and where we're not going to hold. And we had areas of pockets that were holding and then they just exacerbated to the downside. And we'll cover them. So MRNA, for example, was setting up to just be an absolute monster. And then the ESMO released their data early. And you can see that they did an oops on their website and the stock was down. And then that just exacerbated the move. And then you saw IBB come in and you saw RG blow up and all these things kind of came down on it. That actually helped pretty well, didn't it? But that's why you saw like M do what it did. You saw Merck blow up. So where does this really leave us right now? I don't know what's going to reverse this trade right now until it washes itself out. And the question is, with all the variables that I just went over, I don't see it as something that's going to wash itself out in a day. And we broke some critical levels. So I think you need a V at this point. So what I mean by that is first and foremost, the EWY is breaking its put wall at 150. So we have to see what South Korea does tonight and what the Asian markets do. Then we have to see what happens really with France and they get any stabilization in that. So then that takes you into tomorrow. Your put wall is at 700. Do I think you break your put wall on a Friday? I don't have a clue, but this doesn't look good. I've seen good before. It wasn't what it looks like. But if you break 700 tomorrow, this put wall is enormous. And if we break that, then we're going to have an issue. And so trying to catch these things right now, this bear flag and it broke. 850 put wall on MU. Sandisk was 1300. They're probably going to walk it to 1250. Like all these are breaking down and they're breaking down hard. I'm not really in the mood to try to catch a falling knife. I put my toe in the water yesterday trying to buy some semis and it lasted. Literally, the trade didn't even last a full day before we got this right. So that's all I need to say on the socks. Let me pull up the socks this way. That's all I need to say. It should have held. It didn't. And therefore, I have to allow this to set up and tell me what it's going to do instead of me telling it what it's going to do. I cannot stress that enough. And I'd watch how BE acts tomorrow and I'd watch how Western Digital acts tomorrow because despite the kerfuffle and saying the word neocloud, these were good calls. And if they don't respond to good news, then you know that you still have negative sentiment. That's it.