Transcription
Seems like a calm day in the S&P, and frankly, from there, it was. But for the NASDAQ, it was absolute carnage for semiconductors. If we take a look here, we're going to get directly into what exactly happened here. We can see it right here.
If we go and take a look at the cues, it's a lot closer and a lot cleaner. So, we're going to get rid of this for a sec, and we're going to go to a bare chart. And then we're just going to look at exactly where we are. This is where we opened. We came right back down that day, end of the quarter. Then we gap down, and we come right to that level. So, what exactly did this? If you go and take a look at the socks, it's pretty easy to see that they trapped everybody with that window dressing end-of-quarter move. Then they gapped us down, and then from there, we closed at lows. The question is, why? So, let's get into exactly why it happened and what we should do about it. Why you may want to watch Asia tonight. And if you're watching this tomorrow, you want to see how Asia closes, probably for on the US markets at 4:00 on Thursday. So, let's get to it.
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The first thing we mentioned was that we had the window dressing, and that was a decent part of the gap down, in my opinion, off the open. We knew that we had that as an issue, but the larger issue was the Meta news, and I think the best way to do it is to start there, and then we can kind of dive into it. So, Meta releases an article, or there's an article released by Bloomberg, I should say it that way. It's an actual article, and I'll show you a snippet of the article by Bloomberg. But right here, boom, just like that. 7 minutes, you're up 8%, $44. And here is the article. To be clear, this article is from Bloomberg, and "Meta Platforms quietly engineering a move into cloud infrastructure." So, they're getting into the cloud space. A business built to sell AI compute power and hosted models outside customers, putting it in direct competition with AWS, Azure, and Google Cloud. So, they build the hyperscaler side of the business, right? They get this hyperscale, we're suspending the spending, and they don't have the same business that AWS, Azure, or Google Cloud does, but it does kind of make sense that they might want to be in there. After spending aggressively to lock down data centers and hardware for its own AI buildout, Meta now wants to turn excess capacity into outside revenue. And this is part of it that really set it off. It's the words "excess capacity." According to people close to plants who weren't named because the details remain private, the company is wearing two paths. The first path, developers pay to access AI models, including Meta's own Muse Spark, running on Meta's own data centers and chips, structure that mirrors Amazon's Bedrock service. Second, and I believe this is the issue, selling raw compute capacity outright. So, just, "Hey, we have all this excess capacity. Do you want to lease it from us?" This is the same playbook used by Neocloud operators, Coreweave. And this is a really a problem for Coreweave, and I'll explain why in a moment. Both track fall under internal initiatives called Meta Compute Test, with building and managing the company infrastructure led by infrastructure chief.
All right. So, what is the issue with this? The issue really is the excess capacity. So, instead of worrying about building out your model and all the money that these guys are spending on hyperscaling, what they're saying now is, "Hey, since we have all this excess capacity, here's what we're going to do with it. We're going to take all this excess capacity, and we're going to start this cloud business." Now, we're either going to let them mimic maybe what AWS is doing, or what we're going to do is we're going to do just outright, "Here's the capacity, you do what you want with it." Well, that's not somebody that all of a sudden is going to need more capacity, right? So, then they start worrying about the hyperscaler spending. Is the hyperscaler spending going to go sideways? That's the first part of it. Meaning, do they slow their capex going into it? So, to be really clear about what happened when Meta made this announcement, and I'm not saying it's right. I'm not saying it's wrong, but this is the issue. Are we going to see a capex cut? So, do we see a capex cut? Do we see a capex slowdown? Right? Do we see any of these? That is why semiconductors cratered the way that they did. And the people that are going to get the brunt of that are going to be the commodity-based chips. Your commodity-based chips are going to be your Micron. These are the names that are going to get hit the most. Your Micron, your SanDisk, your DRAM. They're the ones that are going to really take it on the chin. And so, what you're going to have to watch now is how that plays out overnight. Because overnight now, we have to go and watch EWY. Now, the issue with EWY is over 40% of it is Samsung and SK Hynix. So, if there's going to be an issue, and if people assume there's an issue, remember, there doesn't have to be an issue to create panic. But if there is an issue, and we do see more selling based upon this, then we can start seeing Asia come in tonight. And then if Asia comes in tonight, then what will we do tomorrow? We'll react to that, at least off the open, into our non-farm payrolls number. That's the problem. And that's why you have carnage in the market.
Now, there's two schools of thought here. The first school of thought is this is great because now we can buy semiconductors cheaper. The bottom line is after everybody just ripped on semiconductors, and then at the same time, you have all the people that marked to market so they could show the window dressing, they got hammered today. They got absolutely destroyed. And so, this puts us in a precarious position. And I'll show you why. So, if you take a look at DRAM, and I'll clean all this off. We have the. Well, let's do it this way, 'cause I think it'll be cleaner. And so, we have the breakout, we have the breakdown, then we try to rally back to the highs, then we fail, and then we gap down again. No matter whether this thing is selling memory or it's selling bananas, it doesn't matter. And I got asked about this today in the public pre-market. So, I just want to go through this very quickly so that we all get it. This is how I view the market. And I can do this in greater detail. And what I should really do is just create a little video that I can always go back to for this for people that ask, but I look at the market very simply. And this is how I was trained to look at the market over long time ago, back in the day. I think it's better for me to show it again, but I do think making a video of it might be helpful.
So, I look at the market and say, we have the macro side of the market, we have the fundamental side of the market, and we have the technical side of the market. And then this is how it all sits. And this is how those the market will react, or how a stock will react, based upon macro, fundamental, and technicals. Macro to me is what's going on. Think about war, are rates going up or rates going down? Think about when the Fed injected 40% of all dollars ever created into the market. How the market ripped. Remember when NFTs, right? You, everybody remember that JPEGs were called NFTs for a period of time. People were going to get rich off a photo someone created. So, then after you have the macro side of the market, you know, GDP, non-farm payrolls, all that stuff. That's what's going on. The fundamentals of a corporation, who's affected by that, right? Okay. So, that is what's going on, who's affected by it, when do I get in and out? The technicals are going to tell you that. Meaning, you can like DM all you like, but if the chart's not telling you it's the time, then it's not the time. Even if you're a value investor, right? You still want to see something. All value investors still use this. I've had, if you look at Barry, he was talking the other day about why he likes Microsoft because it's near the 200-day moving average. Even though he was really looking at the valuation, he's still looking for a technical when out of that. So, this is how I look at the overlay.
Then what I do, some people invest bottom-up, but they just care about the stock. That's not how I do things. And there's nothing wrong with that. It works. Bottom-up can work. They just have to have a lot of patience. If you look at things top-down, index and then sector and then stock. This works best for me because if they're all aligned, then I have a higher degree of probability of working. It's I'm fighting for inches, guys, like everybody else, right? There's no gurus. There's no special sauce. It just is what it is. So, what you're doing here is saying, "All right, well, the index looks good. The sector that I'm buying looks good." And I'll give you a great example of how you could see where the money flow was going using top-down today. It was real simple to say, "Hey, these are the names we should be buying. These are not the names that we should be buying." So, when we look at this index, sector, stock relation to how we look here with the macro, the fundamentals, and the technicals, right? When I look at this, and then we're going to roll right into this, and I'll dive into it deep on Saturday. Saturdays, we do a deep dive for those that don't know. But when we're looking into this, what I have here is I have a lower low close. We might rally back through it. Very well could rally back through it. As you could say, "Everything's on sale. Let's get involved." But we have a close under the 22 now. We've held the close under the 22 here and gotten back above. Held it here, gotten back above. Do we have a different scenario here right now than we had here if we had the stool back here that I got rid of? Right? So, we would have to look at the stool again and just go, "Do I have a macro issue on the stool?" Well, not really. Not yet. I could have a macro issue dependent upon some factors. But right now, I have a technical issue, right? So, we would look at DRAM and memory as a whole and say, "All right, well, out of my three legs, how many on this DRAM are holding?" Well, technically, you broke. It's just a fact. It doesn't mean that you can't get back over it. Could I have a problem on the fundamental side with DRAM? If Meta has excess capacity, which this article seems to allude to, which the market's moving on, which tends to be jittery right now for obvious reasons if there's such a huge move, well, then we have to think to ourselves, "Yes, this could be something that we have to pay attention to." Therefore, we really want to be very cognizant that if memory, if it slows down at all, or gross margins come in at all, it's going to be a problem. So, we have to be really cognizant of this and say, "Hey, we could really have an issue here." So, and I'm not saying that we do, but that is what we're trying to figure out. You definitely have an issue on the technical side right now. Do you have an issue here? We don't know that yet.
So, if I look at the index, and I would start here, and then go, this would be the sector. But if I looked at the index, you would look at the index and say, "Well, here we are again, and we look like we're closing on or under the 22 again." So, then I'd have to go back to this and see if the 22 moved. And the 22 was at 72467. So, we closed above it. So, we're sitting right on it. So, we could say that, you know, we're still okay there, but technically we broke here. And then we go index, sector, stock based upon this, right? And then we would look at something like Micron and we go, "Okay, well, on Micron, this is the lowest close that we've had on this name since June 12th. It's not really the end of the world, but we did close at the low, and we did close under the 22. And this is the first close under the 22 since we've had this huge move from 300 and 406 since we've gotten above that. So, is that something that is positive or negative?" That's negative. So, then you're just connecting the dots, right? It doesn't mean that we're definitely going to. That's it. We're definitely going to crack. We can use other tools for that or indicators. I could look at the RSI and say, "This I've seen good before. It doesn't look like that." But what we're doing is we're painting a picture. So, if we go look at SanDisk right now, and we look at the SanDisk picture, we're going to see that, "Hey, we're above here. We're holding here, and we're not really breaking down, and we're not even below the 22." So, you're seeing more on the DRAM side than the NAND side. Right? See how we did that?
The question that people are going to have to ask themselves is, "Meta really going to be a problem, or is it not going to be a problem?" In other words, is Meta going to cut capex? Is capex going to slow there? Why are they doing what they're doing? And one of those things is bad. If it's a slowdown because they have excess capacity, because nobody wants their silly little glasses, or for some other reason, it's a problem, and that's going to affect the market. The one thing that is very clear is it's definitely going to affect companies like Coreweave. And the reason for that is because of who are clients of Coreweave. So, raw computing power is what Coreweave sells. Coreweave's biggest client, hands down, is who? Meta. All right. They have a $21.20 billion commitment from them for capacity. Well, it something doesn't add up. And this is why people are trying to figure it out. "Wait a minute. You're buying capacity from Coreweave, but at the same time, you're going to sell your excess capacity?" Like, it just doesn't make sense. And so, it's this is what's really throwing people off.
Now, let's say Meta gets into the business. So, you have this side of it, right? Where you look at Coreweave and say, "That doesn't make any sense to anybody, right? Like, why would you be buying capacity, raw capacity, from someone else if you're going to be selling your excess capacity?" So, then you'd have to go and say, "Do we believe this article? Don't we believe this article?" The street clearly believes the article, or they're being preemptive for the article, right? Like, we'd have to admit that by the way that it's moving. I mean, that's pretty obvious, right? Under glaringly obvious, we'd have to say that the market believed there's something to it. So, then you have this, and then you're like, "All right, well, then raw computing power. We're going to be like a Neocloud." Okay. So, then you would have to say, "Well, NBIS is going to have problems." Well, why is NBIS going to have problems? You know, maybe not. I don't know. Maybe Leopold will buy it again. So, why would NBIS have problems? Well, NBIS could have problems because if Meta gets into the business and they want to get rid of their excess capacity, well, they could affect the pricing power of the, you know, the rental market, and that could affect NBIS, right? So, see how it's all connected. And then you would look at IN and say the same thing. Well, IN would have a problem. Well, then all those names that are doing that are in the space could theoretically have a problem. Now, NBIS is based in the Netherlands, and they have a very different clientele than are in the US. People that are non-US that want access to the higher-end stuff go to NBIS. But that doesn't mean that they still can't affect the gross margins of these kinds of companies. If this is what's happening, that's why we sold off today. And then if you have excess capacity, well, you don't need certain things anymore, do you? Right? Someone needs to tell Dell that because Dell didn't even move today, which is super interesting. Right? They stayed in hardware. But what did move? Semis got smoked. Semis got absolutely crushed today. And it's actually worse than people think it is because you just came out, hit highs, and then you just reversed right back down and you closed all at these lows. So, this was your issue on the day. This is how you can spot it yourself intraday. I'll show you exactly how we did it, and then you can go and do it for yourself.
So, when I'm trading, what we're doing is we're just watching the world go by. And I'll give you a great example of this. I'm trading. We're just watching. We're not judging or anything. And then what we can see here, we can see the previous close. And what I'll show you is this is CIBR. And I'll show you how to create these, and you can do it for yourself. But what I'm doing is I'm watching the biggest sectors or the ones that are seeing the most amount of inflows. And here's, you can hardly see this really, but what it is, is it's MAGS, CIBR, and you can see UFO right here. The SPY, the Qs. Well, that's really blurry. And the SOX, right? And that's at 10:00. So, when you're seeing this at 10:00, it's very clear what they're buying and what they're selling. They're buying cybersecurity, and they are buying the Mag 7. And then they're trying to get in UFO, but at the same time, that's above the SPY, and that's above the Qs. So, this is where you're looking to be long. And then down here, probably not as crazy, right? I like to buy relative strength. You should do what you're comfortable with. So, at 12:00, I put these comments out about Walmart, but let's just get to this. So, at 12:00, you start looking at it again. And what are you saying here? Well, all of a sudden now you're saying that the MAGs and you see CIBR, they're still up, right? You're starting to lose UFO a little bit. It's getting tied into where the SPY is. So, we still have leaders. And then here's where the Qs are. And then we can just see even from that time period what's happened to the SOX. These percentages are relative to the underlying name. I was using CIBR. So, even though the percentages are going down, they're in tandem to where CIBR is. So, very important to get that when you look at these percentages, because obviously these were down a lot more on the SOX when we get to that.
Let's get to this. So, super simple to make yourself. All you do is turn this into a line, and we'll just take the SOX. We'll make this a bare chart, and we'll just go to a one-minute. And all you're doing is just going to this little thing right here. And then you're just going to go UFO. And then we can just do. Oh, they're all sitting right here. MAGS, Qs. And then we'll put in CIBR. And then the SOX should already be in there. Let's see. Did it put MAGS in there? No, it did not for some reason. Just put that in there. Come on. Work with me, not against me. There we go. Yay. And then all we're going to do is come to this level right here. And we'll show you this at 9:30. So, there's 9:30. And at the end of the day, you can see where the SOX is. But this again, all relative. Then UFO fell off a cliff. Qs, SPY, MAGS. And if you're watching this during the day, your life gets so much easier. And you just. I set them up on a chart. Why won't you let me do this? Bar replay isn't available with this current symbol. That's so interesting. It won't do that with the SOX. Interesting. Anyway, if you take a look at this, you can just say it. And by doing this, you can just watch them all day long and watch how they're moving. And it shows you where the inflows and the outflows are going. And it makes your life simple. And this really fit the narrative today. You see, if semiconductors come down, and if you have that earnings pressure, which we don't even know that you're going to have, but it's like a cat in a hot tin roof. You know, you always have to think about this stuff because this is really how it works. You have a stock, right? And the stock will go up until earnings, and then. Larry, I am not in the mood. So, once the stock goes up and starts rolling over before that starts to happen, you'll have earnings, and those earnings will actually start. Let me do it this way. It'll be cleaner this way. So, if this is earnings right here, this one is earnings. You know what? Can we change this color? You're just going to have to deal with the fact that I'm doing these unedited. It is what it is. Just deal with it. So, in other words, here you have earnings in yellow, and then green is the stock. Earnings will continue to go up and then go flat. But what will happen as earnings start to go flat? The stock will actually start to drop. So, if you want a better explanation of this, you can read a book. It's called "The Alchemy of Finance" by George Soros. It's an older book, but you can still find it. I think it came out in the '80s, and it walks through this perfectly. That's the concern. It's not a function of whether or not it's going to happen, but it's a concern.
Anyway, so if we look at semis, the issue is, are we going to see pricing pressure? Are they going to chase this? Are they not going to chase this? I don't have an answer to it. What we're going to do, the very first thing that we're all going to do, and we're going to do it together, I love when we can do stuff together. We're going to just watch what happens with the Asian markets. Do they panic? Do they become concerned, or are they like, "Everything's on sale, let's get involved"? That's going to be a big deal. And then we have to watch what happens after tomorrow with non-farm. But non-farm is a completely macro issue regards to do we see them sell as well. Once we get our handle on that, then we're in better shape. But I do really want to point that out. That is the very first thing that we have to see. What matters is if Meta drops first, and they cut capex, or they slow down capex. And again, big if, right? Oracle didn't cut it back, and Oracle's falling off a cliff, right? This is when Oracle said, "I know we said we were going to spend 60, we're going to spend 90," and now we're at excess capacity. So, now you can see where some of these issues might come in if there is excess capacity. Right now, you have an article. So, if we see how we rallied today, and if Meta does this, does that mean that Google's going to do it? Does that mean that Microsoft's going to do it? See how they all traded up today? The reason they all traded up today is super easy, right? Because if Meta slowed down on capbacks, and Microsoft slowed down on capbacks, and Google slows down on capbacks, I mean, they wouldn't collude, right? They certainly wouldn't do that. That's probably in my head. So, if something like that happens, then all of a sudden you're going to get pricing pressure on semiconductors. And then if you get pricing pressure on semiconductors, then you have to deal with the earnings issues. And that could be the problem. Keep seeing the words "could," "maybe," "might." It's only an article. We don't know yet, but the market has moved so much so fast. I mean, you're up 108% in a quarter off this off that bottom, right? And then out of that from the top, and then from the past two days, you're up 12%. So, you can't expect that you're not going to give something back with the window dressing. And this article was just placed at the perfect right time. So, then you have to ask yourself, "Boy, wasn't that convenient?" But, you know, we'll do a tin foil hat in another night. Let's get through tonight, and we'll see what tomorrow brings.