What’s going on, everybody?

Michael Howell put out a call over the weekend that I can’t shake. Howell runs Capital Wars, and he’s one of a handful of macro people I follow religiously. He says we’re leaving a period of speculation and heading into a period of turbulence.

If he’s right, 2027 starts to look a lot like 2022: lower highs and lower lows, with high-beta names taking the worst of it as people start worrying about debt again, AI debt in particular. We dug into all of it on I’d Trade That this morning, including a Brazil trade I think sets up better tomorrow than it did today.

And stick around to the end, because I’ll show you the name I think could be the short of shorts over the next 12 months.

Watch the show here or read the recap below:

They Go Until They Break

We start every show with momentum. Healthcare looks great. Financials and tech? Negative.

So we’re in a stretch of weakness, and everybody’s suddenly an expert on AI data center financing. Everybody knows everything about CoreWeave. I love it, because when everyone’s an expert, it sets up the opportunity to go the other way.

Our screamers and crashers lists (the stocks sitting at the far edges of the bell curve) tell you where the action is. Energy keeps breaking out, with EOG Resources (EOG) and ConocoPhillips (COP) near the top. Accenture (ACN) has sat on the list for 15 days and just keeps burning higher, up 40% in a month.

On the weak side, you’ve got Oracle (ORCL), General Motors, Netflix, Newmont (NEM), MGM Resorts and Western Digital (WDC). Why does that matter? Because these stocks go until they break.

Take Western Digital. Darling of the build-out, beats on earnings, everybody’s excited, and it keeps selling off. It’s down 50% from its highs, and I’ll tell you this: if WDC ever gets back to $200, you better buy it with both hands.

But it won’t get there in a straight line. That doesn’t exist anymore. In a machine-driven market, you get lower highs and lower lows with funds dumping into every pop, so you can make money on the same stock over and over again.

Stanley Druckenmiller, the greatest trend investor of all time, said back in 2018 that algorithms made his job harder. They push a stock down to the third standard deviation, and then they buy. Pull up Bollinger Bands (an envelope around the 20-day moving average that marks how far price usually stretches) and you’ll see it.

Shorts hit the lower band and cover. Other shorts follow, retail yells “there’s the bottom,” and the stock rolls right back up to the 20-day. If you think in colored lines, you’ll never unsee it.

So how do you trade it? Well, I’m glad you asked. Did you ask? Yes. You might not have said it out loud, but you asked.

You take the names that just landed on these lists and put them against VWAP (volume-weighted average price, the average price everybody’s paid today, weighted by how many shares traded at each level). Sounds pretty radical, doesn’t it?

Newmont gave us the cleanest look this morning. Gold prices are the problem, and the chart’s been gap down, squeeze up, gap down, squeeze up. It got back above VWAP at $108, and the move was a run to $109 and the previous day’s level.

Set your stop right there. If you can’t get it, you’re out with a tight stop and you move on with your day.

Oracle works the same way. What do I know about Oracle? Nothing. It doesn’t matter what I think of it, because it’s one of the noisiest stocks in the world, and noisy means tradable. I anchored VWAP to Friday’s open and watched for a push back to that line. If it can’t breach it, it rolls right back over.

Flip it for the names on the strong side. Lockheed Martin (LMT) keeps bouncing, but if it breaks under VWAP, it becomes a short-term fade with put spreads before the next leg higher.

The Hangover Trade

What happened in Brazil? I don’t care. That’s the first thing.

Last week I said if you traded EWZ (the iShares MSCI Brazil ETF), you could trade into Friday, but you’d better not hold anything into the weekend. Here’s why.

Say the Bills play the Falcons in the Super Bowl. (I wanted a team even less likely to make it than the Bills.) The Bills open as 10-point favorites, the line climbs to 12 and then 14, and by Friday you figure they win by 30, so you bet the Bills.

Every tick in that line made your bet more expensive. That’s what Brazil looked like. Betting on Bolsonaro cost more all week, while the other side of the market was heavily hedging a Lula win.

Then Lula won. And the first thing out of his mouth? We need to start looking at social media platforms. Every hyperscaler had eyed Brazil for cheap power and cheap renewables, and guess who the hyperscalers are.

What you saw today was the unwinding of positions and hedges people set into the weekend. Anchor VWAP to Friday’s close and look for price to meet that line. If you went long, watch the upper Bollinger Band. Price cracked it this morning, so expect some profit-taking, and a tap back to VWAP gives you another shot at the long.

This is a 48-hour trade. Today takes a lot more risk management. Tomorrow, everybody’s metaphorically hungover, and the people still holding positions have to decide what to do. The way it sets up tomorrow is the cleaner trade, and I’ll walk you through it live.

Mark Sebastian jumped on and pointed out EWZ now trades below where it sat before any of this, back when everyone assumed Lula would win anyway. He’s watching it as a bounce candidate to $34.50 or $35.

What the Bondholders Knew

Back to Howell. There’s no such thing as a bull or bear market. There are only liquid markets and illiquid markets. That’s the post-2008 world, and it all runs on flows.

A Geneva report laid out the problem in September as an impossible trinity. You can have expanding debt, loose policy at the banks carrying that debt, and stable markets, but you only get to keep two. When panic hits, the dealers (the banks that take Treasury debt at auction and move it into the market) don’t have room on their books. That’s March 2020, the gilt crisis, Silicon Valley Bank and April 2025.

The Fed or the Treasury steps in, the market gets comfortable, and it happens again. If this is the end of the cycle, earnings matter again for the first time in a long time. Should Robinhood trade at 41 times earnings? My rule: from the peak, I look for a 75% decline.

Now the short of shorts: Carvana (CVNA). It’s the liquidity-cycle darling of the last six years. It nearly didn’t survive the last turn, then ran from $3 to $97, split-adjusted. Do I think it could go to $10? Yep.

The 28 put a year out cost about a dollar this morning. Don’t tell me it ain’t there. Look at what this thing did on the backside of 2022.

For Robinhood (HOOD), buying the June 60 put and selling the 50 makes it a five-to-one bet.

I asked Mark how far out a trader should go with a macro thesis like this. His answer: watch for heavy buying in long-dated, way out-of-the-money puts. When GM traded at $35 in 2008, bondholders bought hundreds of thousands of $2.50 puts for a quarter, going out to 2009 and 2010. That’s when you start playing it short.

Mark thinks of it like a swinging gate with the at-the-money strike as the hinge. Bondholder demand swings the whole downside of the curve higher. So he owns puts closer to the money and sells the far ones, and a 10-point spread that normally costs $3.50 to $4 runs $2.50 to $3. He rolls it month to month and rides it lower.

Everybody expects to walk in and see CoreWeave down $25. That already happened. Now it’s down $2, down a dollar, down 75 cents, every day, and that’s a debit-spread market.

It won’t happen right away. It’ll happen gradually and then suddenly, probably on a quarterly report that punches everybody in the face. We’re early, and that’s the point.

I’ll be live tomorrow at 9:20 a.m. ET with the Brazil follow-through. Come trade it with me.

I’d Trade That,

Garrett Baldwin