Transcription
Heat. Heat. Good afternoon, everyone, and welcome to Monthly Market Report. It's Alyssa Cororum here along with the incomparable Jim Ropel, hedge fund manager and founder of The Ropel Report. Jim, great to see you as always.
Always great to see you. Ready to do it. Let's rip it. Let's go.
Let's do it. Okay. We've been in a choppy market. Let's see where things stand in your view. So, in terms of today's roadmap, of course, we're going to get Jim's thoughts on where things stand with the leadership rotation. Should we be patient with the AI leaders, or should we be focused elsewhere? Earnings season is right around the corner. Also, we're going to get Jim's thoughts on the AI bear case. We know he's bullish. We know you're bullish, Jim, but we'll get we'll get thoughts on, uh, some rumblings out there in the on the AI bear side. And then, you know, maybe we'll round things out with a dose of crypto insights, which you're always so great at bringing to the table. How's that sound?
Double kickass.
Okay, let's go for it. So, first talking about the market. I mean, early June, we had such a character change in the market. It seems like we're still trying to work through that. It does appear that we are seeing a bit of a contraction in the volatility, right? You're seeing, uh, you know, from highs to lows, we're getting narrower trading ranges, but we're still getting curveballs, right? It looked like we were set up so great at the end of last week, and then you have a day like today that's not so great, with a lot of the AI leaders looking like they were trying to find support and rebound. A number of them, uh, didn't look too great today. Okay, I will bring up one that you have been tracking, Jim, and that's Marvell, right? I mean, you have to put in context, though, how far this has gone up, right? Uh, so could we just be seeing the beginnings of new bases for these AI names? Do they just need time to catch a breath, or are you starting to see some cracks out there, at least in the short term? We know the long-term view that you hold, but where do things stand in your view?
Well, the NASDAQ rallied 35% off of the March lows. The tide's got to go out at some point to digest. No, I mean, 35% is a big move. If I had to draw up a perfect digestion, it would be what we're seeing. It is now, again, accumulation distribution on NASDAQ is like C minus, but it's B+ on S&P. So, we've got a very split tape. But even within NASDAQ, I mean, I could ramble off. I just about an hour before the close, I came up with 20 names that are all holding above the 50-day. So, yeah, Marvell, you brought up, legit, it is broken. It's, it broke the 50. So did Intel. But if you can look at the volume, it looks like it's just fallen. It's like it's a ski slope down. The volume just continues to dry up. Now, today, actually, volume spiked in the last hour of the day. I don't know if there was some news, but volume spiked across the board. Uh, your website was tracking volume down like 9% with an hour to go, and then it closed. So, we had a, and look at what the market did in the last few minutes. Um, I couldn't draw up a better digestion if I tried. Now, we cannot break the recent lows of the digestion. But,
Yeah.
I mean, the names that look good. I mean, I'm just going to really quick. STM, TSM, STX, holding the 50. GEV, volatile but holding. ASML, Critical, Credo, MU, AMD, Robin Hood, Net, WDC, Cisco, Crowdstrike, Simo, GH, SITM, Dell, Twilio, Victoria's Secret, FTNT, Lily, Oscar, and the whole biotech sector, which so few people understand. Your count is 570 names in the sector, and it's gone to number 23 of 200. They biotech, networking, security names, financials, transports. We've got one tiny sliver of the market which was critical, critical, critical memory, which is broken really, really hard. And it, it's broken so hard and violently that it, it's not going to be a smooth cup. Okay, it's, let's assume the best case is they rebase. It's so violently down that I don't like the way it's come down. But again, look, if they hold the 50, I'm going to chill, no matter what. I mean, memory could have had its cycle already, and then we'll have another wave in the tsunami of who knows what. So, I am uniquely, oddly, last Friday on the close, instead of rolling my hedges, I did, but I reduced them because of the broadening out. So, I actually became more bullish on the general market on Friday. Now, that didn't work out so great for me today, but that's what I'm thinking short term. I hope I answered that question.
Oh, absolutely. So, we're seeing a broadening out even though there's a lot of damage in the leaders. A number of them are holding the 50 days. So, I guess let's, let's talk about that for the leaders that you do own with the chop that we've seen and with the drawdowns off highs. How have you been trading around those positions? Have you just been outright reducing? If so, how much and what levels? And the, you did also mention hedging just now, too. So, tell us a little bit more about your approach there to managing these positions that I know you've had a very successful year. You know, got really aggressive around that follow-through day in April, and obviously you want to retain as much of that as you can, except you have this other very important strategy of wanting to sit with the winners and not getting shaken out.
Just, I'm going to get to the last part. If you look at like Gavin Baker or, uh, Brad Gersonner, these guys are billionaires because they sat. I don't know a lot of billionaires who jumped all over like with a frenetic pace. I am trying to sit for the long pole. I definitely have been doing a ton, a ton of hedging. Anything that was underwater, pretty much I've just thrown it overboard. I mean, you know, 345, uh, 357, out, out. Do not expect breakouts to work when the market is going sideways. You need the wind in the sails. So, I've trimmed a little bit of, you know, some of my positions became existentially threatening. They got so big. So, I had to lap off a lot of them.
Yeah.
And a lot of them are not acting really super, uh, at this minute, but it's a minute. And so, what I do, what did I do? I hedged up really, really big, largely almost delta neutral with short calls. I trimmed a little bit of names. Uh, you know, you said you mentioned the large percent off the highs.
Yeah.
But that's just a factor of the magnitude of this innovation. This, I mean, when you have such a dramatic innovation, you have to expect the most dramatic levels of extension. So, because the names are down 30, 35%, they had to come down that much to get to the 50. It's just a part of this, the drama, the dramatic, uh, power of this cycle. You know, I was front and center for the internet boom, that was mild compared to what we're seeing right now. The volatility, average daily range, levels of extension. So, yeah, did they come down 30, a lot of names, 30, 35%? Yes, they did. But most of them are holding the 50, or if they're below, they're not below by too much. Now, Intel and Marvell are getting into a precarious position. But, and as much as I love both of those names, I cannot expect everything to work. That's ridiculous.
Um, so that's what I did. But I got to tell you, I'm really for having to pause. I am about as bullish as I could be within a pause. It's, it, how often do you see indexes digest like this? Volume contraction, volatility contraction, trying to hold around the MAs where S&P's 1% off the high.
And everyone's lost their mind. I, I, I just don't get it.
Yeah. And this looks really healthy overall. I would say I think it's probably being overlevered in a lot of these high-flying AI names that have been the source of, uh, a lot of really fantastic gains for traders. But now, it, it seems like it's decision time. Do you hedge? And, you know, you have to be locked into that strategy. There's definitely a timing, a timing component with that, right? Uh, do you reduce? And when do you add? Like, we were getting a lot of questions on IBD Live this morning about Micron, first touch of the 50-day in this big move since early April. You know, what do you do with something like this here? Are these, since they've gone up so much, names like this in the memory space, are they going to need, it sounded like you said they might need more time to digest versus, you know, a, a bounce off of the 50-day resulting in new highs and a quick clip? What do you think about that?
Two, three-month bases would be perfectly normal, natural, and healthy after the moves these things have seen. And, and by the way, they don't have to come back. We're seeing a new crop of names come out, unknown names, uh, ASX, STIM, SIM, OO. I mean, these are new names. Like, people don't know these names for the most part. Um, but the simple answer is, when you have a really, really dramatic move, two, three, four, five, 100% or more, it's totally normal to have a full basing period. And people's expectations have been ramped up so high because they've made so much money so fast, three years in a row. It's like Willy Wonka, daddy, I want, I want it now. I want a golden egg. You know, like, well, chill it, man. Okay? Like, could you just grab a little bench through Q3 to have a big rally in Q4 to have a 50, 100% year? Do we have to make money today, or are you going to cry? And, you know, you can't tell the market what to do. Anybody who understands history of markets understands they've got to digest. I mean, expectations are wacko high.
That's so true. Yeah. I think it would be totally normal to see a digestion here, and then I would give traders an opportunity to get reinvested, right? I, I think that there's a reason why we look at base patterns because that's how you can help time your buys.
The first 100 pages of Bill's book is loaded with stocks that went to Mars but had big, big base-building periods. And by the way, the violence with which a lot of these names came down did scare a lot of people. There's been a good bit of deleveraging in the frothiest part of the market. But the market didn't look like it left the market. It looked like it rotated to other parts of the market. Literally, the market has become healthier. We've purged some of the excess and then broadened out into like, I, I just rambled off biotech, networking, security, finance, uh, financials,
Uh, which are a huge part of the S&P.
Um, and transports. The economy.
Are we going to talk about earnings?
Yeah, let's do it.
The average estimates for S&P are 20% growth this year. 20%. The market's gotten cheaper. The market's gone up huge and it's become cheaper. I rest, I rest the case, judge.
Yeah, that's compelling. So, when you see these other areas like the financials, like the transports getting in gear. I mean, we don't typically see a lot of the true market leaders from those areas. So, how do you handle that when you see that rotation, exposure-wise? I wrote in the, in the report that put out last night, I said maybe we're going to have to like moderate our expectations to some stocks that only go up 20 or 30%.
I mean, dude, just for what people have been expecting, the average mutual fund in a, that does well over long periods is like 9%.
Right?
And every, so many people are up 30, 50, 80, 100%. If we had a, I think people's expectations are just completely out of whack. But on the other side, I have to be a hypocrite of myself. I expect more crazy, goofy, whacked out tidal waves of innovation. You know, a lot of people, I think, understand what a neural network is. Like Tesla's a Tesla rolls off a factory floor. It knows every single street, alley, curb, stop sign in the United States, and every Tesla knows it. The implications for neural networks and robots and the, what it can do to the cost of labor is, it could drive the cost of labor down to where Elon Musk says, you better get a hobby because there's going to be so much abundance. Think about private country club memberships. If everybody needs a hobby and you want to learn how to paint or you got to do something, a lot of people want to play golf, and the cost of club. My long-term prediction is that there's going to be so much abundance because the cost of labor is going to go down so low. Products are going to become so cheap, and people are going to have a lot of free time, and they're going to want to play golf. And the waiting list that's five or 10 years now could go to to a generation. So, anyway, off track.
That is so interesting. Actually, it's not off track. Jim, give yourself a little more credit because one of the things that I wanted to talk about, and we don't really need the charts for this unless you reference something, and I will pull a chart back up, but is with this AI leadership coming off, then you start hearing a lot more about the, you know, people have that knee-jerk of the AI bear case, and perhaps, you know, there are some valid points about future projections versus what we are or we are not seeing today. There are certain AI names, particularly on the infrastructure side, obviously, that are making a killing building out these data centers. But in terms of the productivity gains and the profits, or, or lack thereof, with the likes of the Open AIs and the Anthropics of the world, uh, you know, I think it is leading a lot of people to take a beat to think about the AI theme through that lens. Yes, the, the promise of the future, and, you know, we're, we're starting to see some of the real-world applications. Like you said, we're, it's still so early. So, yeah, we're not seeing the, the profitability yet for a number of these big AI companies, but do you think that it's just only a matter of time, or what are your thoughts on some of the bear rumblings out there?
Well, I have a friend who uses AI in a way that most don't, that he, he really builds with it, and he's like, the cost of tokens is so high, I had to pause. Corporations like, for the cost of our tokens, what are we seeing? There's going to have to be a justification. So, you know, like you kind of mentioned, what do you call it backstage before we get on thing? Go, what if capex goes down? For, what if expectations just moderate?
Well, a lot of expectations are built into the valuations.
Yeah.
You know, and by the way, we could have other things occur like in '98, internet's building out, and we had a global currency crisis. We could have a, something from an asteroid that's flying around in the universe come, come into our orbit and wreck our wagon, you know, like it doesn't just have to be AI that could slow down, or there could be complications, or lack of, uh, profitability, or expectations. I mean, there's a lot of issues, but it's okay. You know, I, I say the 50-day is the guardrail. If that's going to occur, the market's going to break the 50, and it's not going to break it by 2% like this. It's going to break it, and then it could break the 200. So, we all know what the guardrail is. If that occurs, chill it. The innovators are not going to stop. These guys, people, we watch the market, but real innovators, inventors, they're like, they're, I don't know if they're geeks, but they're like, they're just building, okay? Biotechnology, they're splitting atoms and genes and all this kind of stuff. They don't stop when the market goes down, unless funding stops. So, while the market corrects, the innovation will power ahead. The golden goose will flap his wings a little harder. We'll come back up the through the 50, and somebody's going to lay down a couple monster quarters in an earnings cycle, and it's going to kick the whole thing off again. This is not going to stop. I, I mean, could this guy, what's his name? Z begins with Z or Citron?
Zitron.
Zitron. Okay. I don't know who he is. I don't know what he's saying, but there's a lot of possib What could go wrong? And I wrote, you know, if the two-year pops above this little digestion, it could get bad. Well, get, I didn't think it was going to happen today. I mean, oil goes up 10% in a day.
But I, I have to address this.
Just as Trump has said, I don't want to talk to the Iranians, and they're bad people. He could come out Thursday or Friday or whatever and say, "Oh,
Not a deal."
Yeah.
"They're the best. We're going back to negotiations now." As long as your stocks are acting okay, they're holding support.
Puking them because you just got nervous and you're sweating, it's going to be a big mistake if he comes out and says that. And he has a really, not just this presidency, but in the prior presidency, he made us miserable then, too. He whipped the market all over the place. But, uh, I do expect him. He's a negotiator, and, uh, I suspect it wasn't just Korea and Heinix and Samsung. It was oil and rates that really hit us today. But do you think Gavin Baker and Gersonner are like going, "Oh my god, oil ramp today. I'm selling my portfolio." No, they're chilling.
I love it. Chill it and watch the guardrail.
Totally. And that's, and that's what I think is so great about your strategy, the IBD strategy. It's not just blind bullishness or, you know, focus on the, the bull case or, or the fundamentals. We have that very important chart aspect too, but they go hand in hand, right? I feel like you can't have, personally, you can't have one without the other. You know, charts only, I think there are a lot of issues with that, personally. And then I think fundamentals only, you know, that makes risk management really tough.
You, I, I have to, I belong to a golf club, and I learn so much from the guys at the bar there. There's two or three guys that are like perma-bears, and they're real traders. And if you look at the guys who've really made a killing, they've been bulls. The bears are right for brief periods, usually for like a month to five, six months.
And the rest of the time the market's either going up or sideways, you know, up or sideways. The people who've really, really slaughtered it for the most part are the bulls. And the other thing is, you said the 50-day. I'm not even going to go into it, but basically, we are going to see if I, if I'm right, and I could be wrong, that this mega tsunami somehow stops. The guardrail will say, will keep us safe.
I mean, I rest.
Yeah. So, in terms of specific examples, does it depend on your cushion, how patient you are? And we'll just go with the Intel, for example, in terms of how many weeks you're okay with or a distance percentage-wise that you are okay with it. Just a recap for folks, I know you've talked about this before. How, how long or far below the 50-day or 10 week is okay? Or are there more nuances too, like, you know, it looks like this century mark around 100 is another important level that you want to see hold for Intel? Can you walk us through sort of the nuances of the guardrail?
So, the rate of descent down to the 50 is really, really critical. If it comes down and it just goes like that, it glances it, or just gets a little below it, totally fine. I actually can get extremely bullish if it goes tight for a week, like three, four percent below, and then two, three weeks below, like that, tight, tight, I'm just going to get more bullish. Now, if it comes down at like five o'clock on a clock face and snaps it, and volume goes to Mars, I'm going to let some go right there for sure. If it closes more than four or five percent below on a Friday, I'm going to sell some. And when I say some, I probably, you've got to work around it. It is an art, and it is fallible. You're, it's kind of like when you're hedged. Do you undo your hedge at the 21-day? I never do. It's, I find that to be a very unreliable support zone. Now, it comes down to the 50. Does it stop one or two percent above, above the 50? Does it break the 50? Does it break it for two minutes, two days, two weeks? Does it break it by two, three, four, five percent? It's an art, and it is, if as an art, there's going to be a lot of mistakes, and you're going to have to build maybe ebb and flow. Build it. Build it. Undo some hedge. Put it back on. Watch it whip. I call it a messy affair at the 50. It's unpredictable. It's wild, like a bucking bronco, the especially these wild, excessive average daily ranges. So, you have to just be ready to make mistakes, and you have to be ready to get back in. Have the short calls rally against you. When, um, how much, 5% on a Friday close, multiple closes below, living below the 50, you get more than 5% below, assuming the descent was modest, it was coming down at 330. If it starts living below for a week, or it starts getting, uh,
It bangs up underneath it and rejected.
That's a, you got to sell 10, 20, 30% more.
And if, let's say you get worked out of it, you, through all the things I said, all those nuances, you trim, trim, trim, trim, trim, and then it explodes back above the 50 on volume, you got to eat it and buy it back 10% higher.
Yeah, I, I'm facing this situation with the SanDisk, and I was kind of late to the party, but I was buying this in early April just ahead of the follow-through day, and I have trimmed a little bit. I, I think two-thirds of my position. I did sell, I think like a fifth of my shares on what day was this? Um, 6/25. Then I sold more when it broke the 21-day hard. Couldn't help myself. Added back on the bounce, but then I trimmed again a little bit today. It just feels like it might need more time to base. But yeah, I don't want to dislodge my low-cost basis shares for sure at this juncture. You know, we are seeing that relative strength weaken quite a bit as we're seeing the rotation elsewhere. But it does seem like, I think, especially if it can hold this, uh, reversal low, Jim.
Hopefully, it's just in base-building mode.
It's been abrupt. Like, if, if it's a cup, it's going to be like a close to a straight down left side. It's going to have to have a lot of elegant work on the right side and a great handle.
And it, the percentage off the high is there. There's been other corrections in this run that were slightly less than this. Um, it's below the 50 at this, or it's, it's actually right at it. It's, it's in the yellow zone, but, you know, I have a couple, um, uh, mechanical systems I use. Point and figure, MMT, whatever. There's a lot of mechanical systems. All three are green right now.
So, is this, this is a very important stock. Um, we'll see.
Great segue to, to the next stock that I want you to analyze, even if just briefly. I know you've talked about Nvidia as such a bellwether, Jim. You know, maybe it's, it's not seeing the type of move this year that you're seeing from the Microns of the world. You mentioned, uh, Intel and Marvell. They've had fantastic years, but what should, what clues, if any, should we be looking to Nvidia for in this market?
All right, I call it the king of the jungle. It is L Hefe. And I was really encouraged because out of the blue, volume came in and it closed top tick high on Friday, up just a scocher above the 50. And I was very encouraged by that. And then today, it just reversed, and it, it, it was very, very promising as of Friday's close. Now, today, you kind of have to, if it went to like a B+ in my just hypothetical, uh, evaluation, I have to take it down to like a B minus right now. It's, it's an ever ongoing, uh, review. So, if it was like rejected at, like, if it doesn't get back above the 50 pronto, and this is going to be a false move up, and it'll be rejected at the 50, which is going to be a bigger negative than the positive would have been. I mean, this is really, really an important stock. Now, kind of like JP Morgan, it's kind of hard for the market as a whole to go up when JP Morgan's going down. JP Morgan and Nvidia can go sideways, and the market can persevere, but we can't really have these LFA kingpin, you know, what do I call it? The doesn't clean the jungle.
These boys have got to be going sideways to up.
That's a, these are major barometers.
Absolutely. Especially circling back to the earnings season point. Nvidia always reports later in the earnings season, but we're going to be getting guidance potentially on AI capex and, you know, the whole shebang from, uh, a lot of the mega-cap tech companies. Any clues in particular that you're looking for, or, uh, you know, setups? I, I guess if stocks that have pulled back to the 50-day gets, you know, some earnings-fueled bounces, would you be interested in buying any of those, or are you now more focused on the, the rotation, sort of the slower, steadier names?
So, I'm long a lot, a very big position in biotech. I probably have my fund like 35% in biotech-ish. I love Eli Lilly, you know, and, oh no, it got weak for two or three days. I, you know, I am.
The strength looks fantastic.
The stock looks fantastic. It looks spectacular. And if you want to run through the, the fundamental metrics,
Yeah.
With the type of liquidity here, the magic elixir is, it's, it's a glowing example of a golden goose magic elixir, uh, TML. Now, the relative strength is a little bit weaker than I would normally like to see, but the whole sector.
Short-term, short-term relative strength.
Yes.
Yeah.
Um, I've moved. I got so lucky. I, I built. I've been building a position in XBI for three, four, five, six months at, and there's a, a base on base in there.
And there was multiple times when it threatened to break down, but it just barely did, and then it recovered. So, I was just super fortunate that it ended up working out. Um, and there's like, there's a lot of good biotech names that individual names. Uh, and I, I think everybody should have a security name. Definitely a networking name like Extreme, or even a Cisco. The action in Cisco.
Is telling me that they're going to do a lot better than 11% growth. That's a very nice base in progress here. Um, and if we.
Earnings season is the minefield that can blow your legs off, or the the launch pad for great moves. So, I'm first of all, earnings so far, there's been like 17 or 18 of the S&P, which have been very good so far. There's the average miss is like 1%, and, uh, they've missed by 1%, and the beats, which 90, high 90s percentage of beat by a much greater amount. So, earnings season started off really well. I'm looking for some monster gap-ups in some unknown names that could change my outlook pretty sign. Unknown names are not key stocks yet, but they could grow into them. And that's really a very, very fertile. I love earnings season. Uh, occasional mine blows my legs off. Well, hopefully just a finger.
Yeah. Yeah. Just, just a flesh wound. Uh, so, great. We'll keep that in mind for earnings season. Looking for some of the AI tells, looking, uh, for some of the gap-ups in the unknowns because, yeah, I know that that is what gets a lot of these stocks on your radar, Jim. And then what would you be looking for from there? You know, Cisco, for example, it did have a gap up. It was a continuation gap, of course, and then it did have a little, a little something out of there, but now, arguably a better potential, uh, move with this pullback to the 50-day. What are your thoughts about how to look at these gap-ups and then what sort of buying opportunity, or would you be buying on the gap depending on the situation?
It depends on how much of a line you're already carrying. If you're already heavily long, it's going to be really, um,
Diff, or you don't want to increase your line in a sideways market. But when the general market corrects, it creates bases.
You know, we should be, nobody wants the pain. Everybody wants the gain. But you, you get great bases and pullbacks in the general market. It's just setting up opportunity for us. Um, you know, I was, it's a do-nothing market right now. It's the summer doldrums. Volume has been drying up across. I mean, it's just like a ski slope down in many, many leaders in the general market. But it's creating opportunities for us. If we don't have a pause, we don't have bases. This is what we need. We need to, we need to, we've shaken out some excess. We've shaken out some of the memory froth. We're starting new bases. And Cisco is a perfect example. Now, I think Bill would struggle to buy this because the earnings growth is so low.
Right?
Um, but we'll see how it re. Look at Extreme. Extreme.
Can we get a daily on there?
Let's go to the daily. And that power up the right side was on the last earnings report.
So, it's, you know, the, the first name out is usually your big leader. This thing's fighting. It's, it's the trout swimming up Niagara Falls. If the market turns, this will be ex, it's already a Scotia extended. It will go extended immediately, but it's got this is has one of the spottiest records of earnings. I remember this name from like 1999. It just came public back then. I can't believe it's taken 26 years for them to finally get their earnings together. Um, but Cisco is your, and then you've got,
AET.
AET is, you know, I used to call it this, uh, powerhouse of earnings, and it's slowed down. It's a, by the way, founded by a bunch of Cisco executives. It's, I did not love the recent digestion. I, it just, the way it, it looked volatile in the handle. It's within the percentages that are acceptable,
But I didn't love it. It has, it's out, and it's out early, and it is a. Is this a '99 comp? '98, '99?
It is a '99 comp.
Incredible quality company.
Yeah.
Liquid, semi-mature. It's at the lower end of mega-cap. It's out early against a down tape. That's a, that's a signal. I, I think it would be easier to swallow buying. I wish Cisco had Arista's fundamental metrics. It would be re, it would be a really nice base with a pivot above and really good. Look at the pre-tax and ROE on this thing on, uh, AET. It, it's really high.
Let me go back to the weekly. So, yeah, 47% pre-tax margin, 31% ROE.
Those are monster numbers. I mean, Credo, Credo, triple-digit sales and earnings, like 40, 50% pre-tax and ROE. And they, their fundamentals are so critical. You know, the, the GPU clusters have cabling and the copper connecting devices is not, it distorts the signal the longer the distance is, and the more overload they, they run hot and they deteriorate. Credo has a refined cable. It is copper, but it's, it's tin. I'm not going into it. I'm not a, a scientist. Okay. But,
All you need.
Well, it's, it, how about this? They, they can transfer data faster, longer distances, and run cooler.
Now, if you didn't even know that, and you just looked at the sales and earnings growth, you'd go, "Oh my gosh, something major is happening here." Yeah.
With really good margins, and it's above the 50. It's holding so far. So far, this is, this is a wild one. Uh, but Jim, I think that your point about the stocks that are first out is such a great one. You know, when the market is going through even, it doesn't have to be a, a bear market or a downtrend, even just a choppy market. What are the ones that are holding up? Because, and I've got to give it to you, this, uh, Marvell, you and I were talking about this in our early April Monthly Market Report before the follow-through day, and you were, dare I say, pounding the table on this, showing that relative strength, and boy, did it lead over the next couple of months. Fabulous move, and it was first out.
You were a sweetheart for saying that because you don't talk about all the ones I miss. I whiffed on. We talked about Circle for a minute. Like, I was pounding the table on Circle. I'm like, but I did say it must break over 140.
Yeah.
I said, below 140, it's a no-go zone. In my fundamental story may still pan out, but the market doesn't believe it right now. So, it, doesn't matter how bullish I am on it. Like, Eli Lilly could look, remember Alpha Interferon or, uh, uh, doesn't really matter. It was a drug company. They had Fen-Phen, and it was the, so, beginning with an I, and everybody was taking this drug. It was FDA approved, and they find out it causes heart and lung damage.
Anything is possible with these names. They don't have to work. Um, so I'm, I was, I was just as bullish on Lily as I was on Circle, but the market didn't agree.
Well, no one bats a thousand, Jim. And I, that's why we have the rules, you know, because it, it keeps you on the right side of things as much as possible when you're wrong, and, you know, can really help make the diff, all the difference, uh, in moving the needle in your portfolio when you're right. Just, just following some, some simple rules. You can take an awful lot of four, five, three, four, five, six, seven percent losses and cover and erase all that and make a ton of money with one double, one.
But it doesn't. Now, critical. Did I talk to you about this? Did I say position size is kind of more important to me now than cutting losses? I think you may have said that somewhere else, uh, this weekend, but, uh, you can repeat, and I'm sure some people watching, uh, heard you say that.
Well, what's kept me in business for 40 years? Well, that's not true. The first five years of my 40 were really brutal because I didn't find Can Slim. But as soon as I did, cutting losses kept me in business. And I didn't really understand position sizing at all. I was like, kind of stunned to find out from somebody that like 70% of all hedge funds close within five years, and something like most of them in three. What kept me in business was cutting my losses. Even with goofy outside, uh, position size, but if you believe Eli Lilly is your single best name, it's, for me, it's got to become my biggest position. If Lilly doubles or triples, and I have 1% or 2% of my account in it,
Right?
It's not going to move the needle.
Doesn't move the needle. Now, how often do you get a 100, 200, 300% winner?
One a year, one every two years. You better make this. Bill would say, you want to get the most money in the big name. And,
Now, again, some people are retired and they can't afford to,
You know, take a big position, but you, you're wasting your time.
When you do get a monster to have one, two, 3% of your position in. Conversely, you get 30% of your account in a single name, and you have a bad earnings miss, you can do bigger damage.
Even if you're trying to cut your losses at 3, 4, 5 or whatever, you know, under 7%.
If you have a 30, 40% position and it gaps down, that doesn't help you. Position size is more important than cutting losses by this much. But it, you want to remove those existent. You want, I said, blow your legs off in the minefield. You don't want to be in a position to get your legs blown off, even if you do have a, a, the right size position.
Exactly. Okay. So, give us the rundown. I feel like you've told us before on this show, but in the leader of the cycle, how do you want to be positioned? What, what's the appropriate size? And then if you are adding to it, how much do you add, reducing it, sort of that trading around the core philosophy? How, how high up will you go with the position?
Okay, let's assume that we're not in a Darvis box like the NASDAQ is right now. We've broken out the top.
And we're fairly early in a cycle on the initial breakout. I mean, like, first trade, I want to put 10% of my account in. Now, this, for me.
If it goes up one, two percent, I want to buy another like four, five, six percent. If it closes at the dead high of the day, I'm going to try to take that up to 18% of equity. Now, this is in a bull market, a, a TML, a '99 comp, high RS, perfect name with a great fundamental story that I understand, and it's liquid. I want to run that up to 20, under 20%. And then,
On day one, of the buy.
I, I don't want, I want all my stock on before it's up two or three percent from my, from the pivot.
And that's a problem because sometimes that it'll break out, and within minutes, it'll be up four, five, 10%. And so, you know, reversals are so common about 30 to 45 minutes into trading. So, it's very precarious. Like, say you have an earnings report in pre-market. I'm hopefully the night before, I might have bought 10, a 10%, um, uh, 10% of what I want, not 10% of equity. In the o, in pre-market, I'll add another, if it's pinned up there, another 10%. I won't buy anymore. I'll wait for 45 minutes, 30, 45, because that's right when the, the hype, the CNBC.
Well, the CNBC people are jumping up and down going, you know, Astro Labs blew numbers out, and who's selling the stock to the people buying it? The, the trading desk, the prop traders are shorting it on the open to all the fish snapping it up, and then the public interest dies, and it often will pull back, and the trading desks will cover their, their position. That happens. So, with indexes, gap-ups and gap-downs, they reverse frequently. So, past the first 45 minutes, if it's still pinned up there, I'll add another 10% of what I want. Come noon, if it's higher again, I'm, I'm going to buy more. And I'll just, I, I frequently buy a stock 10 times in a day if it just keeps going, going, going. Um, that's the plan. But I also said I want to get my whole position on within two to three percent above the pivot. Now, that is, that doesn't happen that much. It's an art.
I was about to say, you said that earlier, and, uh, feel like that's appropriate for this discussion too. It's definitely an art.
If this was one plus one equals two, you could write a program to do it, and human involvement would not be necessary, but judgment would not be necessary. But judgment is the whole thing. That's why I'm not too worried about AI taking my job anytime soon.
Exactly. Yeah. It maybe can be helpful with the research aspect or even the post-analysis component. But yeah.
That thing no one wants to do, post-analysis.
Yeah, exactly. All right. So, I think to wrap things up, Jim, do you want to give our audience, because I know they love your crypto POV? You want to give us the your latest thoughts on what is going on in cryptoland these days? I've got this marked up, this IBIT. I know there's tons of ETFs, but clearly, you know, crypto is not in a strong uptrend right now. What should we be thinking, Jim?
I've got one thing to say. Well, I've got like four. Crypto fear greed indicator hit extreme fear. 11 out of 100.
Never before has it been at 11 or lower where if you did a dollar cost average in for the next six months to a year, have you lost money. I, I again, because I have a fund, I understand, I get all these reports from companies I own positions on positions in most of them. Their earnings and sales or their metrics are just, they're just going like this. So the fundamentals do not match the price. Now, it doesn't m, when I say started dollar cost average, it's probably for somebody who's has zero exposure. Okay, get off zero. Wall Street is tokenizing. The exchanges are going on the blockchain for settlement. The SEC's told the exchanges. Hyperledger is exploding. This is, I don't know what's bigger, weight loss drugs,
AI, or blockchain.
But they are, you know, we've got this convergence of these. Like Kathy Wood is right. She's got the worst technical analysis and worst risk management of anybody, but this lady is crazy smart and knows. So, you know, my partner wrote a piece many, many years ago, and he said, you know, when Amazon came down 90%, when people, you know, there's been multiple periods where stocks have been obliterated, and the fundamentals just continued to build positively. Crypto is in a stale bear market. Now, if crypto does not get above the 200-day MA, if let's use by, uh, the use Bitcoin, if it doesn't get above the 50-day, and we don't get above that high going back about 80 year pointed rate, at Christmas could be rough. The tax selling could be extreme. The last two weeks of the year. Now, I don't know if that's going to happen, but with 11 out of 100 fear greed, extreme fear, the, and we've been in a bear market now, a 50% pullback. Um, if we do get a big selling period in December, I just feel that is the time. We'll have worn out. It's already stale right now. So, anyway, uh, the market does not like what my position of I'm super bullish. I, but I, below the 200-day, the 200-day rolled over. It, you know, it's, by the way, we have three distinct waves down here.
Three distinct waves down.
And an undercut.
Yes, you are the best. You know exactly what I'm communicating. Uh, three waves down is very, very typical in bear markets. We've time.
I should say duration, magnitude down. The, it's set up. Um, if you DCA in, say, 10% a month for six months, and you're not above cost, I would cut that off. But I, I rest. I said, I have one thing to say, and I have five.
Well, this is one of your areas of expertise. You were super, super early into this space, Jim, and you know so much. And it, it's interesting because this is such a different beast, right, than like an AI stock in a lot of ways.
Maybe not with.
Go ahead.
There's a lot of, a, there's a lot of public companies that are larger than the whole crypto space combined. This is a nascent, immature, although it's much more mature than it was 10 years ago.
Nvidia's double the size, the one stock. So, the upside here, the infancy, it's still very, very, very early innings here. And, uh, if you look at history, nobody could be shocked if this thing is trading 250 on Bitcoin in two years. I mean, no, you'd almost say it's the default.
Yeah, I think that, you know, obviously from the innovation game-changer kind of aspect, you know, you can't draw those parallels between, you know, the bull case for crypto, the bull case for AI, but in terms of it being a different beast in how you get in, right? Like, I feel like if this was an individual stock, an AI name or software, I would imagine you wouldn't say pay dollar cost into this in this position over the next six months. It's kind of a different animal.
Would you agree?
The whole crypto space, I would, I would not do it on a single stock.
Yeah.
But I would do it on a broad sector play if I completely understood the fundamentals.
I would pretty much. It's, it's a no-go zone. Okay. Um, in the bare, in big, big bear markets, I've, uh, opened up the, the war chest and bought what I perceive to be bulletproof. Nvidia, I bought in the bottom of a bear. My cost is like $3 on Nvidia, and I still hold it. I've held it through many bear markets. I've held, you know, I have two different methods. How I run my funds is a, is a, a fundamental analysis trend-following system, and I'm an intermediate-term trend trader based in fundamentals. And then I have long-term family money.
Which I've held Lily, Microsoft, uh, just a ton of names for decades, you know, long, long time.
So, it's different.
It is. But I think maybe your point about where that leaves you, so after, you know, the six-month period, you said if you're, if you're underwater, you know.
Yeah.
So, yeah, you're still managing, you're managing risk with that instead of just.
To a certain extent. Yeah.
Yeah.
Well, and, and picking the right ones.
Nothing is 100% lock, but the crypto space as a whole is, it's really, really growing rapidly. The adoption continues, the utilization of the, uh, the innovation there, um, on a single stock that could be usurped. I, I probably would not, uh, plunge by any. I don't plunge in hardly. I'm not a plunger boy plunger. I am not boy plunger. I'm not Jesse Livermore.
I'm an old guy who doesn't want to take the monster risks I used to do. I'm trying to chill it before I kill it.
Yeah, I love, I love that catchphrase that you use now. Uh, well, I mean, I think scaling up to 18% of the portfolio in a day, that's, you know, that's still significant.
Well, that's real, but it's nothing compared to what young people can do. Back when I started leverage, you know, margin, you put 100 grand in, you can borrow 100. When I started, you put 100 grand in, you can borrow 200. That was common.
And I would run that up in a day or two from cash to 300% long. And it was five-day settlement, and sometimes I just bought whatever was breaking out, and I didn't understand them. So I'd take a day, five days, five days to figure out which one was the best, and then I'd trim off the rest. I did that all the time. I mean, that compared to that. So that's compared to taking an 18% position in three, four names on a follow-through day is sounds like a re, you know, old man play.
Compared to that, I suppose. But, uh, I think that that's a strategy that our audience really likes hearing more about. So, we appreciate it. Jim, any final thoughts as we wrap?
Your outlook for, you want me to teach you how to trade? Use the code IBD for the bundle at the Ropel Report. Follow me on Twitter at Upupticken. And don't let this little period throw you or dissuade you. We're looking at a $90 trillion buildout over probably like the next 15, 20 years. The waves we're going to see are, I said it very recently. I said, I think more money could be created in this wave, this cycle, than all of the money created in all of history. That's how bullish I am. If that happens, the new high list is going to point us to the promised land like a divining rod. Golden goose is real. Ally, thank you a million times for having me. I love doing it.
Uh, thanks a million. Back to you. We appreciate it. Thanks so much. Bye, Jim. And thanks everyone for tuning in. That is it from us for this month. Jim and I will be back in August for our next installment of Monthly Market Report, and we look forward to doing that with all of you watching. We appreciate our YouTube audience tuning in live, all the interactions there. And that is it for now. We'll see you back here next month.