Abbott losing Texas was the one result that threw me off.
I knew Paxton was going to lose. I just didn’t think he’d take Greg Abbott and the state’s whole leadership team down with him.
This morning, the market had its knee-jerk reaction to all of it.
Solar stocks ripped, defense got hit, and the biggest cloud companies rallied on news that should have hurt them.
Today is not the day to chase anything off the headlines.
Instead, I’m waiting for one signal in the options market, the one that tells me a knee-jerk move is finished and it’s safe to step in.
It’s showing up in Intel right now, and I’m watching for it in two of today’s biggest movers.
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The Cloud Giants Rallied On News That Should Hurt Them
The governor-elect of Texas ran on a moratorium on new data centers. Texas was supposed to be home to a big chunk of the AI build-out.
So the companies paid to build that capacity got sold. Applied Digital was down nearly 3% this morning, and Quanta Services, which builds and maintains the power grid these data centers plug into, was down too. Microsoft, meanwhile, opened up more than 5%, and Alphabet rallied with it.
Hans Albrecht, our AI and infrastructure trader, explained it on air. Demand for AI computing power is “parabolic,” he said. “People want it. That’s not going away.”
What changed is how fast anyone can build more of it.
The cloud giants already own the capacity. In Hans’s words, “they’re sitting on these gold mines of compute, which I think has a lot of pricing power.”
Solar Ran 6% Overnight, And Today’s Not The Day
TAN, the solar ETF, closed Tuesday at $43.34. This morning, it traded over $46, a nice knee-jerk reaction.
I think green energy is going to be strong. In the order of things, healthcare and then green energy are probably priority number one and number two for this Congress. TAN is going to be an interesting buy and hold, but today’s not the day.
Defense is the mirror image. ITA, the aerospace and defense ETF, was down about 2.5% this morning. It’s going to take a day or two to normalize itself, and then it’s going to present us an opportunity.
Any real weakness in defense is going to be a buying opportunity. Congressmen want defense manufacturing and military bases in their districts. And the war in Ukraine is showing us the future of war, which is drones.
The Options Tell Me When It’s Time
So how do I know when a knee-jerk move is done? I watch what traders do with the options.
When it’s time to get back in, you see put selling and call buying in those names. Selling a put means you get paid to agree to buy the stock at a lower price, so you only do it when you think the drop is mostly over. Buying calls is a straight bet on the stock going up.
When both show up together, traders are lining up to find a floor. We’re seeing it in Intel right now, especially after AMD’s earnings. I’m waiting to see it in ITA and TAN.
There’s a risk in waiting. There will be some mean reversion over the coming days, and you’ve got a president who has vowed to keep his veto pen out.
Some of these moves may get cheaper before the signal shows up. That’s fine with me, because when the opportunity presents itself, we will jump in.
My First Trade Goes Out Monday At The Open
The next 60 days, until the new Congress sits on January 4th, are going to be full of big ideas. There’s going to be a lot of talking, and I want to take advantage of it while we still have an all-Republican Congress and presidency.
So starting Monday, Nov. 9, at 9:30 a.m. ET, I’m running Cycle 11 of Special Situations. It’s about six trades a month, every one with a set entry, a stop and a target.
This isn’t only me trading it, either. All seven of our traders are feeding ideas into one book, with one goal.
My first trade goes out at the open Monday, and we never add members into live positions, so get in before the bell.
See how Special Situations works
Your only option,
Mark Sebastian
P.S. Special Situations is built around one edge: a stock the crowd misprices on a headline. Over the next 60 days, Washington is going to hand us a lot of those headlines. Get the details on Monday’s first trade here.