Morning, everybody. Hope you're doing well.
Yesterday, 337 stocks in the S&P 500 finished green, and the index still fell 1.2%.
Only one session since the '90s split the market wider than that, and it was DeepSeek back in January 2025.
That's where we started this morning on I'd Trade That, so stick around, because further down I've got the exact line I'm watching on a stock Elon Musk just put in play.
Watch the replay or read the recap below:
So what happened? We got a reaction to an earnings report, and suddenly everybody everywhere became afraid of AI. We suddenly found out it costs money to build data centers.
Yet utilities, industrials and the fuels you need to power those data centers all went up, and yields went down. I thought we had a deep national concern about AI data centers?
How do narratives work? Everybody's scared of AI spending on the same day major banks see something like $700 billion in bonds coming for it next year.
So yesterday was the day everyone got scared? No. The Direxion Daily Semiconductor Bull 3X (SOXL), the triple-leveraged bull fund on chip stocks, has dropped about 50%, and this started back around October 7th when our cap-weight numbers began to crack.
The Class They Skip in Business School
Okay, I'm going to do my best to make sure you survive this explanation.
Banks hold shares. Hedge funds can get at those shares without technically borrowing them, through deals like total return swaps that hand the fund the gains while the bank collects a fee.
Funny thing. The dealers ran out of room on their balance sheets to finance any more of those deals. So what did they encourage their hedge fund clients to do? Short.
The funds never got rid of their long exposure. They just started shorting on top of it. Goldman's prime brokerage book still holds 23.5% in tech, the 90th percentile of the last five years, and short leverage on that same book sits in the 99th percentile.
So now you've got short squeeze risk sitting on the exact same names that just got pummeled. Those shorts have to cover eventually, and that can mean a violent reversal.
If you're confused, congratulations. You just took the 101 course in finance, 2026 edition, and maybe half of 1% of the population could follow it. I had to study this stuff out of one bloodshot eye at 9:00 in the morning, and most MBA programs won't teach it to you, because they teach you how to market cat food.
Hot Pepper in the chat said the big banks rig the market. It's working exactly as it's designed. If you're long AI right now, you're at the mercy of dealer financing, total return swaps, mechanical selling and volatility fund exposure.
Isn't finance wonderful?
Where the Rescue Usually Shows Up
Nobody's going to fix this, and I don't expect real financial reform before 2030. So you trade the day in front of you.
The SOXL sits oversold on RSI and MFI, two gauges that flag when selling has run too far too fast, and we don't stay down there very long. Over the last 12 months, every time we got here, policy showed up and the shorts covered.
Japan's stimulus on November 21st, 2025. The Treasury drawdown during the war in late March. The yen intervention on July 29th. And the one that slipped past a lot of people, the Fed's 25 basis point hike on September 16th, which bottomed out that night before we squeezed again.
Anything policy-related in the next five or six days that could change the direction of this market? It happens Wednesday at 2:00, with a press conference at 2:30.
Goldman flagged squeeze risk this week, and I'll be honest, I find it very hard to take Goldman at its word. They were saying zero bid on bonds, and since then yields have fallen 30 basis points and the iShares 20+ Year Treasury Bond ETF (TLT) keeps squeezing.
On the Qs (QQQ), I anchored VWAP (the average price everybody's paid, weighted by volume, from whatever starting point you pick) to yesterday's open. I'm watching 703 underneath and 706.83 above, and if we break 706.83, this thing can really run toward 719.
For something bigger, 733 is my line, a little above the 20-day moving average. If we squeeze through there, I'd start thinking about gambling into December.
Options aren't cheap with all these earnings coming, so if you want a lottery ticket on the back side of the Fed, keep it small and use a spread. Buying the October 30th 725 call and selling the 730 runs about $100 and gives you a five-to-one type of payoff.
What the Watch Salesman Knows
SpaceX wants at least 80,000 cell sites across the country. When Crown Castle's (CCI) CEO got asked about it on the earnings call, he said they're talking to all parties. That means it's an auction.
Every tower owner in the country just got a bid from a tenant bigger than anything this industry's ever seen, and carriers like Verizon (VZ) just got a giant new rival for the same real estate. Crown Castle jumped about 12%, and as I wrote in the morning piece, I expected a rollover at the open. It opened at 92 and rolled right down to 89.
You have to think like the seller. Picture a bazaar where a guy wants $1,000 for a watch, you say $5, and you haggle for two and a half hours. Why's he still negotiating with you? Because he wants to sell you that watch, and whatever price you land on, he's still comfortable with it.
The people who've held Crown Castle since $79 would love to sell it to you at $91. You don't know their entry point. And the folks who saw it on CNBC this morning and figured they'd ride Elon's bid? Mm-mm. No.
Short interest runs about 9.5 million shares on a stock that trades around 4 million a day, and short selling creates buying. Anybody who shorted it down near 76 now has to buy it back.
So go back to the institutional line, anchored to around 5:30 last night when everybody was celebrating. Crown Castle needs to get back above 89.24 before I'd have any confidence. If you're in, take part of the gain at the first standard deviation band and park your stop on the rest at that line.
It's lines on a screen, guys. The whole point is to give you bumpers in the bowling alley so you roll a higher score. We redraw them Monday at 9:20 AM ET, two days before the Fed, so come trade it with me.
I'd Trade That,
Garrett Baldwin