Transcription
There are two things that are driving the carnage that are going on right now. We're going to cover both of them in detail. By the end of this, you're going to know exactly what's going on.
The important thing to note is that the spy did actually break. I'm not going to like save this as some kind of teaser. We got below the 55. It's very clear what happened here. If we take a look at the cues, we can see the same exact thing. We can see that we have broken and the 12 and the 22 are pointing down.
The most important thing for us is to watch what happens with the Fed next week. You have the 10-year that is back to a level that we have not seen in years. And this is really driving what's going on in the market. Meaning it's driving what's happening in tech. And a lot of people are not understanding why it's so important, but it's really very important.
Crude is driving this as well. And we should understand why crude is driving that. And we're going to explain it in some detail. But this is really a very connected situation. And once we understand that, we can then go forward and figure out what we're supposed to do about it. And that's what's important.
Semiconductors are holding up better than expected. What's so fascinating to me is if we take a look at what's happening with the Magnificent 7 and what we saw this week. What did Google actually say that's actually driving us down because they absolutely crushed. So, we have to really dive into this. But the important thing for me is going to be the difference between what the mags are doing and what the socks is doing. And this is going to tell you everything.
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's already in. The important thing is you get the information education that you need. Subscribe. Let's get to it.
So when we look at the magnificent 7 versus the semiconductor index and this is really important and I think that everyone saw it start to rally over like myself getting above this 55 and then we're saying oh wow this is definitely going to be you know we need to be in the mag names but Google changed that and they changed that emphatically this week and that was based upon the capital expenditures that we saw there. We're going to get into that in detail. We're going to explain specifically why you have to watch what happens next week. And I'm going to tell you exactly what you need to watch next week because you're in a pretty treacherous situation. So, if you don't understand this, you're not going to understand what's happening. But it's very clear and you can deal with it very easily. Something like a Google can easily continue this kind of downtrend and retest certain lows. And I think that that's very important for us to get. In other words, we need to understand that for these mag names, this might just be beginning. It might not be ending.
But if we do the simple things to start and we get into the spy for example, we are below the 55. So the first thing that we'd want to do is get above that. Now if we look at the breadth of that market by going S5 FI and everybody has access to this, we can see these areas and that it's actually the breath is actually getting better. You're not in this situation where the breath is awful. Far from it. And that rotation that we're seeing is actually a problem. It's not a blessing. So the rotation into XLV and into these other areas is not really what we want right now. People think that oh I should start getting into these other sectors. The problem with that is when this starts to rotate the rotation back could be vicious or even going sideways that could be vicious.
When we look at something like the cues you broke. No matter how you look at this you broke. And again you can see left head right. And people don't like my drawings but there it is. I mean, it's pretty obvious where it is and what what it's doing. You have a neckline, and frankly, to me, the neckline was up here, and I think you've broken that neckline. So, I think coming back to that 680 level would be an area. And then your main area that you could come to if things got really bad would be something like 636. Now, to put this in perspective, and I know people are having a hard time with this, you're not even in a correction technically. A correction technically to me is 10%. And that's going to put you at 675. I don't see how that doesn't happen, but you know, weirder things have. 15% is not even or 14% to 16, it's not even a 20% quote unquote bare market before you got to 636. So, understand what you're dealing with here and then that can help us move forward.
What's important to me is that you understand what's really driving this because if I look at like NDFI and I thought this was super interesting and this was brought up actually, you know, in the community and I was kind of surprised by it. So, I actually did it by hand, too, just to see it. You're at 40, which is not great. You never really want to be buying this unless you're over 50. I'll turn this into a line. And it's right here, and you can see it. Look at it. And why this is important is because when you break 50, if you go look at any time that you've had like a really bad time trading, it's when this breaks 50. It's like all of a sudden your idea is you're not as smart as you thought you were, right? Like our swings just don't work the same way. So, when we see this, we want to get back above that 50. It's NDFI and you can put that on your own chart so that you can watch it.
Something else that I do a lot of is comparative analysis. So I'll take the S5 FI and I'll divide that by the NDFI because comparative analysis works and I'll watch these areas and I what I'm looking for here is to see what happens when I get to certain areas. There's the stool. I left that on. Isn't that smart of me? So what's important about this? Again, you have drivers. You have the macro, the fundamentals, and the technicals. And this is how I view the world. And I view the world by hey, what's going on macro, fundamentally, and technically. And you're going to see that when I start going through all this. But the most important thing for me about this is yeah, I am in this area where we do tend to find ourselves starting some kind of reversal. But it can get worse before it gets better.
So when I see something like this, and this was April 2024, I have to understand just because I'm at the same levels or I'm past the levels I were with the liberation and winning and some of the other nonsense that we have to deal with. We can see that and say, "Hey, we're above it, but I need it to correct because I could still go higher." But we want to see when it starts to turn because again, and I don't usually go back this far, but it can get worse. It can always get worse. And we have to understand that. I don't usually like going back this far because of the changes in where you are. Candidly, I find that going back three years is very helpful, but I think it's important to just point out that it can always get worse and we just want to watch this. Right now, this is telling us that we are in that green zone, actually above it, but we do need to see it start to come back in versus just saying like, oh, hey, we're there, so we definitely want to do it. I would say that when you see this, if you start to look at this over a period of time, it's very rare. Like if I go back over this and let's just do this for 10 years so we can see where I'm going with this. It's very rare that 30 days later you don't have some semblance of a bottom 30 days later. But you still have a lot of time here where this can get a lot worse. So you just don't go, "Oh, well, I'm going to buy now because 30 days later it's going to stop." The markets can drop a lot more. So, what I find that's most helpful is to wait for some kind of turn in it and then go from there.
So, let's address the core problem here because I think that's the easiest thing to do, just to understand what's really driving this. I think there's two things. One, I think there's some issues under the hood, but I think they're a little different than what people think they are. Two, if you look at the S&P, the S&P is down 2.7%. The rest of the market is not down 2.7% and certainly what hedge funds are buying are not down 2.7%. Now, we all know the names of the top hedge funds, right? Like what they're all buying. Let me clean those all off. So, obviously, they're in Nvidia. If you run through the names, it's something like Nvidia, Amazon, Meta is not one of them anymore, but it was. Now, it's Nvidia, Amazon, Microsoft is still up there. So, they're still in Microsoft as one of the top hedge fund holdings, which doesn't look great. Google is a huge one that everybody's in. that's obviously breaking and Apple is the one mega cap that's still held that's doing well. But all these hedge funds also are going to go out there and they're going to own the arms of the world. They're going to own the socks of the world. All these names, right?
The problem with this and why it's so important to understand this is hedge funds are getting absolutely destroyed in comparison to their benchmarks. So they are judged based upon their performance obviously. And if you can do better in the S&P, which right now you pretty much can versus what people are doing on hedge funds longs and they hedge they're, you know, they're always looking for shorts because they are literally hedge funds. That's why they're actually called hedge funds because they're really supposed to be as net neutral as possible. But the purpose of me pointing this out is the following. When we see this, we have to understand what the issue is because if you understand the issue, then it starts to make sense. And so what you have here is really just a very simple in this example that I'm pointing out is an inflow and outflow situation meaning everybody piled in the same names and now everybody's underperforming.
Now the easiest way to see this is to take the spy and then just divide it by the cues and you will see that the spy is just completely utterly destroying the NASDAQ. So if we were to look at this level and to say let's go to June 30th for example right here and if you own technology which was making you a fortune from March 31st on and I could just inverse this so you can see it you know you saw something like 10% difference between owning the NASDAQ versus owning the S&P during the past quarter into this quarter you know die by the sword live by the sword die by the sword it's you're already down 6% and you're a month into this little nightmare for people. So, what they're doing is they're getting out of those positions and they're getting into other positions.
Now, this gets super interesting because people will look at sectors and say, "Well, why aren't the other sectors, you know, they're not really going anywhere?" They don't really have to go anywhere. In other words, when you look at something like an XLV, for example, people are saying, "Well, it's not really going anywhere." Well, XLV versus something like, let's just take the socks again to make it simple. What's it really doing? it's outperforming. So all that underperformance that was going on from March 30th on where if you were short XLV and long, let's just go to the 30th, that got you 46%. So if you shorted XLV and were long the socks during that period of time, you made 46% on your money. And so what you're seeing is people are looking at this and saying, well, it's not really going anywhere. It doesn't need to go anywhere. They just need to put that money on the side and stay out of the way and not get absolutely annihilated by what's going on.
So the first thing that you have here that you have to deal with are inflows and outflows because what people will do is they'll look at a name like pick any name that you want but they'll look at something like an ARM for example and say well ARM you know I'm just going to hold ARM till it comes back up to here. Well first off you could have an entire AI boom continue for years and ARM never get to this level right because you have to realize that what you're dealing with are inflows and outflows of people and what they're trading. Now, I'm not saying that's going to happen, but it's an example of what could happen. It's the same thing with Marvel when you get that kind of hyperbole in here, for example, where Jensen comes out and says, "Oh, it's going to be a trillion. This is the next trillion dollar company." And then all of a sudden, everyone's like, "Yeah." And then they all pile into it. Well, that's exuberance. That is nothing here that did that. Here's earnings. Here's what earnings did. And then here's him getting on stage with the dude in the leather jacket and everybody getting excited. So, you know, when you realize like, oh, okay, well, that's what actually happened and this is what the stock did at it and this is when he did like a little Tik Tok dance routine, right? And that added 47% to the name in 3 days. And then people are like, well, why is the name down? And then you have to just do the simplest things to go, well, here's the RSI. Here's the break of the RSI. So, what are you really seeing under the hood why this is happening? Right? There's that divergence. Whenever someone says divergences don't work, you can just screenshot this and send it to them. So when you see something like that, you have to go, why is that happening? Well, all you really did in this case was come back to where where you were for the earnings right before the Tik Tok dance and the leather jackets. And I think that that's really important for us to get as traders and investors to look at this stuff and go, well, where'd we really go? Well, they roundt tripped us back to here.
Now, something like Marvel, if you start seeing it break these levels, which it probably the way that this thing's setting up is probably going to do it, right? Like you can't really look at these charts and say, "Oh, well, these things are fantastic. I can't wait to buy more of them. You know, that's like poking yourself with a needle over and over again saying, I don't understand why it hurts. So, we just have to adjust. And so, the first thing we have to do by the adjustment is say to ourselves, you have an inflow and outflow situation here. And then the question is going to be, what's going to fix that? So, the very first thing that's going to fix the first problem that you have, and there's another problem, too. But wait, there's more. But the first thing that you have to fix is the inflow outflow problem. It's the very first thing you have to fix. And the way to do that is to actually watch the S&P start to falter with the other names. And once that starts to happen, it'll start to kick in.
Now, I'm not going to sit around and hold my breath for the VIX and say we need VIX, you know, 40 or VIX 35, but the majority of people, yeah, they're going to look for that. I'm not really in that camp that I need to see that happen. But I think it's very interesting that the VIX isn't moving. And then if I go back and take a look from just you know 25 on and we were to look at these things you know that's peak liber liberation and winning and then you can just kind of go through from these October levels where you really had to get to which was over let's just say over 29 you're not there. So one of the things that we were showing before that was super important and I think this matters from an inflow outflow situation and I'll explain why. So, one of So, I'm not in that camp, but I could see how someone would say, "Hey, until I see a three handle on the VIX, I'm not interested."
So, one of the things that we've been going over for some time here on this channel, let's go back. Let's load this in is this core 1M. And if for those that don't remember, just remember this. It's just basically the S&P. It's options on the S&P versus options on top 50 market cap names, right? That's what you're looking at. So, it's always important. Let's put an O in there because someone will comment on that. Go, where's your O? That's what they sound like. So, if we look at something like this, we have to understand what we're looking at because if you don't understand what you're looking at, who cares? So, all right. So, let's This is interesting. So, let me go back here and go. So, when did this break? June 30th. Well, that's a coincidence. All right. So, the thing that broke is the same thing that when the socks broke down and when the socks absolutely collapsed and everybody, we could just blow this up and look at it. So, what this means for us is that we would have to get back over the level that broke and then see that correlation shift where they're starting to trade options the same way in the S&P that they were trading before and not see that huge correlation. Now, you need to get above eight on this. I don't look at this a lot, but this was, as someone likes to say, absolutely glaring. So, what we want to do is get above that eight and then you want to see them push up over and then they'll come back down and that cascade back down is really what you're looking for. So, historically, yeah, this was a problem. You had a completely bifurcated market because all these guys were trading and owning calls and out of the money and selling puts and everything else because of where you were in the market and they wanted exposure. But if you historically go and take a look at this, these peaks and then trailing back down is usually where you put a bottom in. So you're not really seeing that yet. So the first sign of that would be, hey, let's get above that eight. And you can go and take a look at these, but you're always going to get these like wonky days like this on these things which make it like almost impossible to look at on a chart, right? You get this kind of crap. So maybe if I turn it to a line that might make it easier. Yeah, that didn't really help me, did it? Didn't really help my cause. Well, it smoothed it out a little bit. But what you're looking for is to get above that level. you know, and you can see that level pretty clear, right? So, just watch this and there it is and that's what it is. So, that's the first thing that would help with inflows and outflows and that is one of the problems that are out there.
There is another one that we just focus on and just to be clear, the inflow outflow problem is not really the big problem that this can just change because the S&P comes down with it. People are in cash, everything's breaking down and then they can go from there. I think the second one is a larger problem because it's what happened in.com and I'm not saying you're there but you just need to be cognizant of it because then if you watch this you'll at least know what the issue is. Let's cover that little suck salad.
Now we're going to take Oracle because Oracle is really the poster child for this to some extent. So if we take a look at Oracle and we see this huge breakout and then comes down completely collapses tries to rally back up and then after that rally back up we could see that you've completely collapsed again and taken out that. So what's really driving this and what's driving that decline is the huge amount of debt that Oracle has and the ability to pay that debt down. Now when I say what broke.com I want to be really clear about this. I don't know that you're there. Nobody knows that. What someone's going to say down the line is that you're there and this is why it broke and then we're going to look at this a year later and we're either going to be at all-time highs or we're going to have cratered. But to say that you know what's going to happen is just hubris, right? You can outline scenarios, but this is the end of the world. This is where Itchy injected $1.7 trillion dollars in the market and people were actually buying something called an NFT even though it was a JPEG and he got absolutely smoked. This is where we had all the winning and liberation and everyone's like that's the end of the world. It's going to cost me $87 to go buy an avocado, right? Like so you can literally look at the chart and see when it was the end of the world over and over again.
Now, if we go back to the end of the world during com, the issue with.com and marking this off was really and and why do ended was a couple things and I'm I'm going to highlight them so that you can see the similarities and see like what the similarities just aren't even close. So, the first thing was none of these companies had earnings. So, there was so in 2000 you had zero earnings. So, these were dreams. In other words, what we were doing back here was, "Oh, I have a website and this is so they would come out with like eyeballs converted to revenue someday." Like they just had these crazy like crazy things like you have eyeballs. Oh, that's great. That so you had zero earnings. And because you had zero earnings, you couldn't pay debt. You just there was no way to really pay debt down, right? Because you had no cash flow. So if you have no cash flow, what do you have? Okay, you have negative cash flow, right? What's going to make that C? All right. Uh, so that's important. And a free cash flow is everything. And you can see where I'm hopefully you can see where I'm going with this, but stay with me.
So what did they do? They did secondaries. I'm just going to say secondaries here. All right. What else did they do? They did bonds and specifically converts. So they did convertible bonds. They did secondaries where they're issuing stocks. And then after they did that, what happened? people finally said, "No, I don't want to buy Pets.com at a share price of $4,000 because, you know, Timmy might go there and buy like a squeeze ball for their dog. Like, I'm not going to pay, you know, it's not a trillion dollar company. I'm out." And so once that happened, it just started to feed upon itself. That's why do blew up. You had no earnings. You had no cash flow. People no longer wanted to buy the secondaries. People no longer wanted to buy the bonds. That's in a nutshell why this blew up. And then from there you can see it took something like I think it was 16 years or something or maybe it was 12, I don't remember. 16 years for it to come back to get back over, right? And so now you can see where you're at and what's going on. But so let's go through this as we wait for the end of the world again and everybody's waiting for it.
So just so we're clear about this and I think it's important to just have a little grounding experiment. You're down 9% and everyone's acting like this is the end of the world. You're not even at a a correction level yet. Correction's 10%. like it's not really that big of a deal if you really think about it to come back and retest a support level which really can happen. A matter of fact, you can go and test a support level and then after you test that support level, you can then go back to all-time highs. I mean, you've done this historically, you know, throughout history of the NASDAQ and the S&P and of all indexes. So, to come back down, flush everybody out with their weak hands and come back down another what 6% from where you are is not a big deal. very likely that something like that happens in the market. We used to have 10% corrections once every 18 months. The reason they stopped and the reason you have more volatility now is frankly itchy's out of office and he and he stops messing with this the the S&P. I mean it's a big difference between this Fed chair and another but that's adding volatility that's not getting back to what our second larger issue is. And I think that this does matter.
So, if you go and take a look at crude oil and everybody thinks that, you know, oh, he's going to taco. He's going to taco. Taco what? He doesn't have the ingredients anymore. He's not in charge. He's no longer the chef. And I'm sorry if that hurts everybody's feelings, but you know, it's very clear that overseas has dug themselves in. It's very clear that the Middle East is digging themselves into this position. And so, the question that you're going to have to run into here is how does this end? And I think it ends with a massive escalation. This I'm going to give you my opinion and I'm not a geopolitical expert. Far from it. But I think this ends with a massive escalation. I don't think this ends the way that we think it's going to end. And I'm just going to say why that's important because it infects inflation and that's what we're going to get to the next part of this and where this real issue could tie together. Remember what I just showed you about 2000? We're going to tie it all together. But I want you to understand how it's going to trigger because then you can watch the moving parts of it. But I don't see that this there's going to be some kind of oh we're worried about the midterm so we have to do this or that. It takes two, you know, it takes two to taco. He doesn't have a partner here. It's very clear that they don't care. It's very clear what they're doing. So, I don't know how this ends, but I do think it it escalates. And we've been trading oil on the long side and doing very well with the trade. And I don't really know, you know, what's he going to say? We have another deal and then after the other deal, you can trade it through USO, but it's just been a monster. What are you going to say? We have another deal and then a week later that deal is going to blow up. I mean, at some point, you know, it it's an issue. It's not political. It's just like this is actually what's happening. And a lot of people get their feelings hurt. And I gotta be honest, I don't really care. But you have to be able to judge this objectively and say, "How does this end?" Because crude oil is twothirds of our GDP one way or another. Like whether it's the soap or whatever it is, it's injected in everything. So like it's really huge for our GDP. It's come off more than you think it has. Probably not 2/3 anymore, but it's darn close to it. It's in everything.
So, when you start seeing like the 10-year do this, which is what it's doing, and heading back to highs, and this is how it all ties together, that's because of inflation. And inflation, crude oil is so in embedded and gas is so embedded that they actually created CPI without it so that they could show you difference between with it and without it. That's how important it is. So, and I don't think a lot of people get this, but if you look at what's happening with yields and you go back to where are you from June 30th on, the second part of the issue that you're dealing with is you've gone from 430 to now where you're at 470. And so, yields are 8% higher in less than a month. So, when you tie that together and you go back and take a look at crude and you're like, okay, well, when did this happen? Oh, right around July 30th. Oh, okay. So, this all happened around July 30th. All right. So, is that a factor as well? Yeah, it's a factor and this is one of the core reasons why it's a factor because of the borrow. So if you go back to the borrow of what it costs to borrow money for let's say a hyperscaler or to issue a secondary that borrow goes up as the tenure goes up. It's just a fact. So what does that mean? That means that whatever their cost to borrow is all of a sudden those the interest payments are greater. Well if those interest payments are greater then they're in a position where they're not going to be able to make them as easily. So, if you can't make them as easily, companies like Oracle all of a sudden can't issue as much debt. And if they can't issue as much debt, then they can't grow the way that they're supposed to grow. They can't grow the way that they're supposed to grow, then they're not able to possibly make their debt payments. And this ties you into what CDS's are, and that's insurance on making those debt payments and not going into defaults. That's how do ended.
So, the thing that's going to end this, and you have to remember something. When Meta started all this, and let's just do the Mag Seven because it's so much easier to do it this way. But like when all this started, everybody had to get in the MAG names cuz they're going to grow and they're going to be the best because they're spending all the money, right? All of a sudden, and everyone's like, "Well, this isn't going to end." And frankly, you can go back to here even when this damn thing opened and when you had, you know, Nvidia with their first big quarter, which was right around March or May of 2023, and everyone's like, "Oh my gosh, these guys are going to make so much money. we're going to, you know, we're going to buy this thing. It's going to be the cat's pajamas, blah blah. And then Nvidia got all that money and everyone get makes money from it. But this was all cash flow. So what you're starting to see and where the issues start to come is when you go from positive cash flow to negative cash flow because now you have negative cash flow and you have debt payments, right? So that's we explain this with Google. Let's go down the rabbit hole. I wasn't going to do it, but let's just do this part of it so that you get it. All right. So this if you go look at a free cash flow chart, which we're not going to do for time sake, but if you went looked at where you got into a point where Oracle went negative cash flow, it's right here. So negative free cash flow happened in that environment. Once that happened, you have a whole group of people that are saying, "We don't want to be in this anymore. That's not why we bought Oracle. We bought Oracle because it's a cash cow. You're no longer a cash cow." Right? That's when it happened.
If you go and take a look at Google, you have people that have owned Google like myself forever, right? For years, and it is a cash cow. Well, Google has decided they no longer want to be a cash cow and that they are going to spend and have negative free cash flow. So, this is the first time I believe there was once 10 years ago where they had negative free cash flow. I think it happened when Google and they split the two companies. I think that's what it was, but I have to go back and take a look, but it's been at least 10 years when I went back through it. And so if we're looking at this, this is when you want negative free cash flow on Google. Now, they can stop the spend at any time, but you just can't pull the bonds back, right? You can't just pull your debt back and say, "I don't want this anymore." Like, you could go back and buy it, but you're not going to. And what's going to happen is you can't refinance it. Well, why why would you refinance it? Because yields are going higher. Like, how many people are refinancing their mortgage if you just think about it that way? Like how many people are refinancing their mortgage if they have a mortgage back here in July 20th at like 2%. Like no one's going to refinance this. So now you're just stuck with these debt payments, right?
So how does this end? This ends because people no longer want to do a secondary on the hyperscalers. This ends when they can't go to the market and get favorable terms. That's when this ends. So Meta just hired so an example of like Meta just hired I think it's Blackstone or Black Rockck to help them with this new debt offering. And I think it's super interesting that now they're reaching out to like and they're not secondary far from it. But you really can't price this thing yourself. Like you just can't go through someone and price this thing out. And I think that that's kind of an interesting observation, right? That they actually went to somebody that specializes in this to get this done. So then the question becomes, how many more bond offerings are you going to do? How much more secondaries is Google going to be able to pull off? See, people like that are buying these names that are doing these secondaries and taking it down like Warren Buffett took this one down, right? Like they have a position in this. Warren's looking out years and most of you people watching this video are not looking out 5 years. So when you see that and like H does a secondary in here, he's looking at this going, we just want negative free cash flow. So what's my hurry to buy this? because we're probably going to come down and when we come down then we'll pick up the pieces and maybe we'll buy it when free cash flow starts to turn. So he's not in any big hurry. He's just sitting on a pile of cash. That's very different than how the majority of growth traders are going to look at this. And so do I think Google is going to turn into an oracle? No. I think it's a completely different company. Do I think Google can come in here? Yeah. Do I think Google could have a problem with pension funds that don't want to own companies anymore that have negative free cash flow? Well, duh. The stock gap down. it's 320. So how do you think it went with that? And then if you look at the very simple thing is here's the institutional level. So then it ties into the other names, right? So do you think Meta is going to stop spending? No. Do you think Microsoft's going to stop spending? No. So you start going through them and you start realizing like, wait a minute, all these names really hit their 55day moving average and then everybody's selling them. Well, why? Because they all know that they're going to go in the hole more for this growth. So, you're going to go through this cycle where you're going to have negative free cash flow on the max 7. And that in and of itself is then going to make their borrow even higher on top of what you're seeing happen here. And so then this gets into the other side of it. How do you ensure it? See, this slows down not because they can't go to market because those companies are huge. they could probably always go to market at some level. But this all slows down when you get to the point where it no longer makes sense for them to borrow or they want they want to sell their stock and people are looking at these secondaries going I don't want any more of this stock at this level. I'll just wait for the next secondary. Like if you know Google's going to do here's an example where I'm going with this. Like if you know Google they came out and said we're just beginning which is what they said on the conference call and everybody panicked. If you know for the next 12 months that Google's going to keep doing secondaries, what's your hurry to do the second one? Why don't you just wait for the third one or the fourth one? Because all they're doing is diluting the company and saddling it with debt. So, what's your hurry to get into those names? You think they're going to stop the day you buy the secondary? Like you, you know, these guys are pretty smart people. I always say this, you're playing against the smartest, most disciplined people in the world because this is where all the money is. But if you look at the CDS's, it'll tell you a really clear clear story. And a CDS is just insurance on a bond. So, let's take a look at some of those.
Now, first what I'm showing you here is I put together a graph and Trading View can't do this. So, I had to do it through a different system, but in front of you is the top 20 names that hedge funds own. And I just put it into a graph so you can see it. And I think it's important to get this. So, this is the high where you were, and that is second quarter. See how it ties into second quarter, all these levels. Don't you think that's super interesting? And so, now they're getting out of that trade. And while they're getting out of that trade, you're down about 10%. So they're down about 10% and the S&P is down about two. So this shows you really what that issue is. And I just want to point this out again so that you can actually see it in form. The average price of those top 20 names and where they own it came in around 817. So let's take something like Kore. And it's going to be this big grower. And you can see that here's your IPO and this where we IPOed at. And one of the things I always say is once these things are out, drop an IPO VWAP. I also like taking the peaks and just dropping it there as well so that you can take a look at this and see exactly how this stuff is going. And this is pretty obvious how this is, you know, how this is going. I think it's super important for people to get this like why is this driving I don't understand. They have all these companies and you know, everybody wants to deal with them and they have all these deals. Well, the debt load of the company is what's driving this. So let's take a look.
Now what you're looking at is Coreweave stock price down here. And I can't chart CDS's. I have to use different systems. I have to calculate them manually. But like where I'm going with this is above is the CDS. And you can see where the peak CDS is. And so what does this tell you? So this is a 5-year yield. And so I'm just going to make this super simple so that you can just kind of get an understanding of it. It's and it's not simple, but I'm going to try to make it simple. where you're at here means that they have like a 12 to 13% chance of default every single year. And then if you take that chance of default of 12 or 13% and you make it a 5-year CDS spread, that's going to give you around a 50% chance that Coree actually defaults on debt. So there's going to be some kind of structure of when people are looking at Coreeave over the next 5 years. Now, if the money starts coming in and things start going great, this is definitely something that, you know, could 100% implode. A matter of fact, what you're getting at here is you could see these lows and where these lows are put in and you could see when things were getting better and we everything was starting to get rosy and how the stock actually trades up inverse of this. And I'm going to give you an inverse example. But when people are looking at this and saying, you know, what's going to change this or what's going to stop or how do we know, you know, that this is going to turn or we or all of this where people are looking for certainty in an uncertain environment like you're trading all these multiple instruments that are all connected globally and you're looking at this and saying, "Oh, I'm just going to buy it because it's going to be fine." Like you're going to get run over like I you have to understand and connect these dots or go and buy an index fund. But understand what's going on here. So when this started to lift the CDF, what starts to happen here? It drops. Now if you can't chart CDS because you don't have access, I start trying to present more and more of that data on this channel. But you can always look at the bonds. You can always go and get bond pricing pretty easily, right? And candidly, they have it in the back of Barons. Like you can go buy a Barons and actually read a newspaper. I know, grumpy old man telling you to read. But what this is telling you is that hey, you have a 50% chance of default, man, in five years. like that. Does that sound good? Like nobody wants to be in that situation. So when people are trying to figure out why this isn't rallying, that's the issue. But wait, there's more.
Let's go back to Oracle for a second and let's see this breakout. And that's September 2025. And since then, you've completely rejected. So whenever you have a date where something has flipped, do yourself a favor. If you take one thing from this video and you're like this guy with his CDS spreads and his, you know, views, just remember this. take key events where you see reversals where someone's in a lot of pain and just put a view up there. Sometimes you can even go there and do something like where you put a volume profile on it and then see where those people are at to see what happened to them and you can see how that's playing out for them right now, right? But really the VWAP is such a great demarcation line because it just tells you like, oh, we're over. All right, so I probably don't want to short. Oh, you broke down below it again. Okay, here's earnings and you can't rally. All right, cool. See, what you don't want to do is just think that everything's the status quo. Oh, it's one of these. Because yeah, you start if you've been doing this for a couple decades like I have, like you'll start connecting the dots a little sooner. But these things are just great demarcation lines because it's like, oh, maybe there's something out there. I don't know. But let's get back to this. But if you focus here, September, this is when that happened. So when we get here and we see in August and September that the credit stress equity of Oracle is lifting, what's happening here over this, right? And where's the stock peak in here? Right? And just bear with me because I used the computer to do all this stuff. So like some of this stuff's off. Like that's not the peak. But you know AI, they're going to take all our jobs. Maybe they should learn how to read a chart first, right? Nudge wink. Anyway, say no more. Anyway, see how CDS's just keep rising. Well, that's the cost to borrow. Now, this is nowhere near where coreweave is. And I I want to be really clear about this so that you can understand. The probability of Oracle defaulting right now is like 3%. like it's like nothing. But the cost to borrow goes up considerably because this is up. So if someone's like, "Hey, can you let me 20 bucks?" And you're like, "I don't know, man. I let you 20 bucks, you know, a year ago. I still don't have that back." I'm like, "Well, here, take out this insurance for $1. I guarantee
"that I'll pay you back." All right, cool. Like, at some point, you're going to be like, "Bro, you're not paying me back. I could I I don't want your dollar. Now you got to give me $10 to make sure you pay me back the 20." Right?
So if you think about it, if you think about it that way, but what this is saying is like in five years, this has a chance of like 15 to 16% of actually defaulting. And so it's something where that's not what people are thinking. It's certainly not Coreweave, but for Oracle, the cost to borrow goes up considerably because of this. And so what we're seeing here without going through 47 of these is, yeah, Meta's is starting to creep up. Nvidia is starting to creep up. Now, I'm talking about going from 1% to 2%, but it's going to increase the cost to borrow.
So, what we have to see is we have to keep monitoring this and seeing how these bond auctions go. We need the crude oil to drop because of this. And we need the tenure to rally. So, what do you think you want to watch this week? Maybe the Fed meeting and seeing if they raise rates because if they raise rates, what do you think is going to happen to tech?
Now, as the greatest actor of our generation said, the world's not all sunshine and rainbows, but I do think that this is important for me to point out. So Argentina because of like, okay, well, what, give, give me something, man. So if we look at this and say, well, what fixes this? All right, they don't raise rates, people's the cost to borrow drops because yields come down, we get world peace and we get the greatest deal of all the deals with Iran and then everything's everyone's happy. And then because of that, this is what we see. Why is this important? Because here's Argentina and I'm not going to go back all the way, but when this deal was being done in the room, I remember everyone's, no, Argentina is going to default. In the community, we had a lot of people that were like, "No, this is really going to be a mess." And we had the US got involved in it and converted, you know, their currency into ours. It was a whole thing.
Anyway, the point that I'm getting at here is Argentina's chance of default during this time was this 2130. So, to put this into perspective now, Argentina 2130, just to put this in perspective so people can understand this, this is telling you that you have a 25 to 27%. And I'm giving you ranges so you can understand this. It's not an exact science, but there's like a 25 to 27% chance they were going to default in a year if that stayed there. And obviously, nobody wanted that to happen. At that level, at five years, you're at an 81% chance of a default rate. You have an 81%.
People will remember a trade. I'll show you in a second here on why we did this trade. And it this will all start to make sense. Yay, learning. But what's important about this is when the CDS reverts and drops because things are better, look what happens to the stock price. It explodes. So we moved insanely fast when the CDS came down. And this is exactly what could happen with the hyperscalers if they start throwing off a ton of cash between what they're doing. If they don't and yields keep going up, then the inverse is going to happen. This is the second mechanism that's going on in our market right now. Inflows, outflows, which we just went over. And then this is how they're paying for it all. And that's why people are getting out of the memory and getting out of the other names because of this because they're like, "This, I see the end. I've seen how this movie ends and it's not great." That's the concern.
Now, if you're in the community or you've been watching these videos for some time, you're going to remember a couple things that are really important. And I just want to show you this so that you can say, "All right, well, let's say that the bonds, it gets better and yields drop and crude comes in." What can happen here? And it's important to understand both sides of this. Here's where the new president, I, I think they call them pre-presidential elections. I guess that's what they call them there. They call them prime ministers. But this is when he came into office and this is when he won in a landslide. This is when Congress won and everybody was worried. And the jump that you saw the trade then was to understand and CDS's here were like 3,000. There was like almost certain default in five years. And why this is important is because if you understand this, well, who owned that debt? Well, banks own that debt. And if you were in the community or you're watching these videos or I think I was on Twitter a lot more then, which I don't really do that much anymore, but if you go back to these dates and you can start seeing like these areas and just start marking them off like in this area we bought BB, we actually bought all of them, GG, BMA, and then you can go back and take a look at this like YP, you could just take a look at all these charts and just see how they've done. And that's an oil company. But from that date on, they absolutely exploded. Why? Because the cost to borrow dropped. It's no different than what happened in here as well. It can be a good thing when they start using measures of austerity.
So if and so where am I going with this? Let's go, let's do it this way. So if we think about this and you can obviously see these movements and it's pretty darn obvious what happened, right? Like these were just home run trades. But what so what could happen? All right. So if Meta comes out and says on next week, "Hey, we're cutting capex," the stock will go absolutely crazy. If Microsoft comes out and says, "We're cutting capex," the stock will go absolutely crazy. Same thing with Amazon. The probability of that happening after what Google just did, in my opinion, is pretty slim. But if you are watching any of those earnings and they cut capex or say we're leaving capex the same, then you're going to be in a position here where you could see those names actually rally and that would drive down their CDS's and that would lower their cost to borrow. That's what you want to watch.
So when you go into this week, it's really important that we watch this and we see how this goes. And when we start selling, everybody starts locking in their profits. It doesn't matter if it makes sense or it doesn't make sense. They just start locking in their profits. So when we see something like, here's a great example. So like here's CIBR and we all know that cybersecurity is definitely going to be something that we have to watch. But when we start seeing these kinds of divergences, your antenna needs to go up. So when the RSI start doing this kind of thing, you need to be very cautious and coming back to certain levels or coming back to like the 55, that's usually what tends to happen. And if we hold those areas, that's great. You just watch them when they start to see the divergences. Is do we hold the 12? No. Do we hold the 22? No. Then we need to hold the 55. And if we don't, you have an issue. And you can see this with names.
So recently we had a trade in PA Hello Networks. And we did really well with the trade. We just absolutely slaughtered it with it. But we did another one. And then when we start to see this, I didn't wait. I'm just like, "All right, well, we tried to break out. We have this divergence." And these divergences are nasty. They're already setting up to come in and they're already setting up to come into levels that are pretty brutal. So you're already breaking like the level here. You're already breaking that down. So what does that mean for us? Well, now we're looking at stuff like, hey, are we going to get to, you know, that 55? You just want to be really careful of the things that you think are safe right now. And that boils back to how we always look at stuff, index, sector, stock. And we're not seeing anything that's really great there right now, right? We're starting to see signs of it, but we need to see the stuff actually hold.
Remember, Fridays are the days when we need to see if institutions are going to step in and rally and get involved. Well, how'd that go for us? So, not very well. And a matter of fact, one of the most interesting things to me was that we actually lost more semiconductor names than we previously had. Now, that doesn't mean that, how can I say this? That doesn't mean that you can't find a bottom. That doesn't mean that we don't find a a level where this risk is baked in. But when you start getting over 55s, you're breaking them. You want to see if you're going to, you know, rally or not. You want to just start paying attention because if you take a look like Micron, we lost Micron under the 55. We lost KAC under the 55 on very good news. You know, Intel came out said they're spending $20 billion to build out. Why did Intel drop? Intel dropped on that news for the same reason we just went over everything that we just went over because they're looking at this and saying, "Hey, if they have to borrow money or where does this $20 billion dollars come from?" Well, it's going to come from secondaries or it's going to come from bonds.
Is this going to be an end like .com? Yeah, that's a really good question and I don't know the answer to that. The first thing I would say is these companies have real cash flow and they can stop at any time and have that cash flow pay off, right? But the growth is predicated upon the hyperscaler spend. The hyperscaler spend is only going to go on for so long and eventually that will come home to roost. It's function of just when does that happen. I don't think you're there yet. I think they're going to continue to do it but until you find an area this is what's going to happen when companies are saying they're going to come out and increase capex. So we know that now going into Microsoft and Meta and Amazon this week, right? We know this.
What I thought was super interesting, and I was surprised when the guys in the room said, "Hey, the NDFI, which is your stocks above the 50-day, actually was flat." When I ran through it, what I noticed was it was more semiconductors that broke again. Now, for time sake, I'm going to overlay this so you can see it, but this is a proprietary breath indicator that I use. And when it starts to roll back down, it's usually, if I can line this up a little bit better, probably could. You'll see that when this peaks and drops down and I set this perfectly so that when it does this that it's a pretty clean trigger right on where that bottom is and the the stocks can bottom before the NASDAQ. So, and you'll see it, you can't really miss it right when it happens like here's the bottom and then boom, it just completely imploded. What started happening down here and we can say it and I'll try to blow this up a little bit more is the overall breath of the stock started getting better and now it's getting worse. To be clear, this could only go to 100 and then it's at an extreme level and you are at extreme. Anything over this red line is an extreme level. This is something I created. I've been using it for years. Candidly, I don't share it for a lot of reasons, but it's pretty darn obvious when you see this stuff and you just follow where the arrows are going. You can see the crosshairs.
I do think it's interesting because I don't know that you're just going to completely implode and you are seeing a bifurcation. And I think you should pay attention to this bifurcation. As we started this video, we started talking about the cues and what's going on and what to watch. This doesn't look good. We talked about all three of these connecting in here. Obviously, I've seen good before. This is not how it looks. You've taken out the lows and you've closed at lows. You have a gap in your chart right here and you can see that gap. It's like 680 to be exact. You know, this magnet, it taunts me. It comes out when we don't want it to. But you have a gap here at 680. I think it's like 68086 to be exact. And you didn't get there totally on that level. But it's possible that you see something like that. And if you want another area like, well, give me another area, Rocky. Then you would just come here and go, "All right, well, here's 100 and watch the 100 level and say that's where you would come next. 636 is pretty much where you would, you know, where you would head to. But you could watch and see if 670 holds."
What's interesting about this is if I take a look at the cues and then I take a look at the socks, you'll note that the socks didn't hit a low. What the socks did was actually come down, break 50, and now we want to watch what happens here. And I'll explain why. Because if semis start to hold, then you're going to start to build. This is no different to me than what happened in 2025. Now, if I go take a look at the socks back here in 2025, and I clean this off, and then I just drop this down to here. And so here's that big bar where we paused on that winning and liberation. And I'm going to blow this up so that you can see it. And there's your 50% line. So we get the winning and liberation and then we start battling the 50% line under it, over it, and then what happens? We just lift.
So marking off 50% to see what happens here is pretty important because if the socks can stabilize, if certain names can stabilize, then I think that you could say, "All right, well, maybe we do start to form a bottom." See, you're constantly evaluating this. Like, you're not looking at this. And if if you're watching something or reading something and someone's saying, "This is definitely what's going to happen." Nobody knows. But if you know the things and you remember the things that I just went over today, and you monitor them and they're not getting better and they're getting worse, then we're going to go lower. If they start getting better, then we're going to we're going to level out and eventually we're going to go higher. And I have my belief, and you can hear it in these videos what my belief is. It's pretty obvious where my belief is, but that doesn't mean I'm right. I'm going to ch I'm going to trade what's actually happening, not what I think because one makes me money and the other one just strokes my ego, right? I'd rather make money. And this is a really important concept that people lose. But if the sock starts to hold, well, that could be certainly that could be interesting.
What linings do I see going into the Fed meeting this week? You know, if you take a look at XLF, it actually started to lift. If you take a look at KRE, it actually started to lift. But what we want to do as investors and traders is watch what's actually happening. Watch what Microsoft, watch what Meta, watch what they actually say on these conference calls. And for those that always say to me like, "Hey, how do I get better at learning fundamental analysis?" And this is, you may have heard me say this before, but for those that want to learn this stuff, let's clean all this off. You watch the conference call, and you can always go back and do it. You watch the conference calls, and then you watch what they say on the conference calls, and then you watch how the stock acts on the conference call. It's really very simple. It's not more complex than that.
So, for example, on something like here it is on Google and I, you know, I have to do these unedited just for time sake with the community, especially now I do all the onboarding calls myself and the community will open up again shortly in uh September. But, and if you're interested, just get on the wait list. But if you go and overlay the conference call, well, what happened here? Well, they increase capex. The minute they increase capex, that was it. And you're able to learn from this. So listening to those conference calls, even if you listen to it later, you'll start understanding the things that can move the market. And you're going to get it this week. You have a lot going on this week that's going to really clean out where people are going when you start listening to these conference calls and what they start saying about their capex. The tip.