Dear traders,
The Nasdaq’s up two and a half percent as I write this, and everybody wants to know if Thursday was the bottom. I’ve got a different question. Why does the worst news of the year for Nvidia (NVDA) turn into a buying spree for every chip stock that isn’t Nvidia?
Because the market’s already doing what it does every midterm cycle. It’s rotating ahead of a new Congress. That’s why I executed my first Cycle 11 trade this morning instead of waiting for the all-clear.
The bounce I don’t trust yet
Let me be straight about the tape: The triple Q blew through its 200-day moving average last week, and today we’re climbing back to test it from below. We bottomed under the July lows and we’re sitting about where July opened. That’s still a bear range, and it’s either a dead cat or the start of something. I don’t know which, and I don’t need to.
What bugs me is the flow.
On a real investable bottom, you’d see puts getting sold in Apple, Nvidia, Tesla, up and down the board, the Warren Buffett trade. I’m seeing the opposite. Crash puts are getting bought, and nobody’s selling premium into this rally.
Then there’s the pattern of the last two months: open the week strong, get slapped back down Thursday and Friday. Show me a week that closes on strength and I’ll change my tune.
Nvidia’s own chart tells you how much damage got done. It traded below 176 at the lows, back to levels we last saw coming out of the March mess. Jensen Huang’s got himself tangled up with an alleged Chinese asset, three House chairmen want him in a closed-door briefing on November 18th, and that’s the day after earnings.
The stock’s going to live and die on how much faith the Street has in the bench behind him. Steve Jobs handing the keys to Tim Cook worked out fine for Apple shareholders. Nvidia has eight days to convince people its bench can carry that kind of weight.
So I’m not pounding the table on the index.
Where the money actually is
Democrats are about to take both chambers, and they can’t pass a thing until January. What they can do is talk, and they’re talking. Every committee chair in waiting is out there explaining what gets investigated and what gets funded once they’re sworn in.
That speculation moves stocks for eight weeks before any of it becomes law. It happened in the last ten midterm cycles. This is the eleventh, which is why we named it Cycle 11.
There’s even a fight over who runs the new majority. Protesters spent the weekend demanding the party dump Jeffries and Schumer for new leadership. That’s a week-one headline, and it’s already tradeable.
If you want proof the approach works in a market like this one, I opened a Special Situations trade in Apple (AAPL) on Friday, in the middle of the carnage, and closed it today for close to a 40 percent gain in a single session. The next two months are going to hand us that kind of setup several times a week, if you’re set up to catch them.
We’re trading every one of them from now until the new Congress gets sworn in. First trade’s already on.
You can join Cycle 11 right here.
The rest of the week is CPI tomorrow at 8:30, PPI Friday, and a quiet earnings tape until Nvidia next week, with the Anthropic IPO possibly right behind it. There’s plenty to trade, as long as you don’t confuse a Monday bounce with a bottom.
I’ll see you tomorrow at 10.
Your only option,
Mark Sebastian