Transcription
Well, Friday we got the mother of flem flams. And yes, that's actually real. I don't know if they'll recall it, but I guess we'll find out. We're going to mark it off. And again, here we are sitting right under the 55-day moving average. You have a 12/22 cross, and we can see the island reversal. We're going to spend a lot of time on this and the breath of the market, but we really have to go over what exactly caused the technicals to look like this because it's not what most people think it is.
Most people are leaning on this AI trade and saying the AI trade is over. I don't see that. I'm going to save you a bunch of time here. I don't see that. I'm going to walk you through two things today that caused this. And you're either going to agree or disagree, but at least you're going to know where I stand and at least you're going to know all the facts. And I think that's the best way to go about this today. Because when I look at things like this, you can't look at this and say it looks great. You'd have to look at this and say that you have a problem. But for me, when I look under the hood, this is pretty clean.
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Now, when I say, "look under the hood," this is exactly what I mean. In front of you is the S&P. Below right here is the 5-day moving average on a percentage basis, the breath of the market. And when we look at this, we can see it very clearly that we are up fairly decently, right? I think we're at like a 67%. All right, that's the 5-day stocks above their 5-day moving average. And if we go and take a look here on the 20-day, we can see where we're at, 63%. So, as the market's actually dropping in here, what are you seeing happen? The breath of the market's actually getting better, right?
So, when we look at this price point, for example, and we'll blow this up so that you can really see it. And again, we're going to start with the basics and then go from there. So, if this line would work, that'd be fantastic. And again, for those that are newer, we do these roll and unedited. So, what do you see here? Oh, I see the breath of the market getting better. Oh, it is. Yeah, but the market's going down. All right. So, when we start to see this, it's a divergence. To me, that is a very positive divergence that the market is doing. In other words, the breadth of the market underlying is getting better, but the market is dropping. But that doesn't make any sense, right? It doesn't make any sense because there's two mechanisms that have caused this entire move down, and those two mechanisms are behind us, and we're going to get to.
So if we then take a look here at the 55-day, which must be in shambles. Now, how many times have you gone through this, and this is really important to get. So here, that's what I do. Turn that into a 90. That's not going to work for us. That's not going to work for us. I must have been going nuts. So let's use... Well, we're going to use the 55 because that's what I'm comfortable with. And let's just go to the open, high, low, close here and click on it. And let's make this... we'll make it white so that you can see it. All right, cool. So here it is. And we can see that we're under it. All right. So how many times have we been above 50% of all the names in the index?
Now these dramatic pauses that I'm having work a lot better when the lines go in. How many times have we closed under the 50-day moving average? I'm using a 55. You should use what you're comfortable with. And the breath of the market's getting better. So, here we are breaking the 50, and we're below the 50. That kind of makes sense, right? Breaking the 50 here, below the 50. And if you kind of go through it, it's not very often that that's going to happen. Here we are breaking the 50. I don't know that I need to drill this into any further, but I think we're going to. And we'll just drop it here like it's hot. And then you're like, "Do..." And then we're rolling over, and then we broke it. We broke it, and then it rolls over. Well, what a coincidence that is! Or here we're breaking it, and then it rolls over. So, we've just gone back to 2025, and how many times we've done this, but you can go and do it yourself. It's something fun you can do this weekend. And when you're looking at stuff like this, it doesn't make any sense. And so, when it doesn't make any sense, you need to pay attention to it. And so, what you're dealing with here more than anything are just mechanisms of rebalancing. And there's two major ones.
But the breath of the market is actually getting stronger. That's the 200-day moving average. It's actually getting stronger. I know everyone told you that the market's crashing and AI, and you know, housewives in Korea are going to cause the biggest market crash, and you know, Michael Saylor's creating this whole issue. I got it. I got it. That's cool. If you want to know what's going on, continue to watch. If you don't want to know what's going on and you want to listen to Mikey on Twitter, cool. But what you have to understand here is what's actually going on in the market.
And I can talk a little bit about Bitcoin, but I don't want to spend a lot of time on it because there's like real stuff to me. I find it fascinating that Bitcoin's doing this, and everyone's talking about the end of the world. Everyone's talking about how, you know, MSTR is going to blow up, but at the end of the day, what are you saying? Yeah, you're still at 60. I'm waiting for it to blow up, too, just because I can get involved with it and finally buy more of it. But so far, that really has not been happen, hasn't it? So, like you can see these little peaks whenever it gets under here. What's it do? It tends to bounce, right? These are the best when you can get like a little positive divergence on it.
And you know, people, I understand, they're concerned about like the STRC. I covered this last week, and it's not getting better. Like that's a freaking dumpster fire when you have a preferred that's doing that. So like, is this the thing that's going to cause the issue? Should we worry about the fact that Western Digital's down? You know, oh my gosh, it's down the levels it hasn't seen since June 12th. Like it's a bloodbath out there, right? Okay. So when we look at this stuff, we have to connect all the dots. And when we start connecting the dots, let's just look at the basics.
So I see the divergence here on semis. And semis have been leading us. And the question is, what's going to happen with them? So if I look at semis and do the simplest things, what do I have? Well, I have the 12, I have the 22, and here's my 55. So if I'm to really correct and come back down and retest the level, where does that put me? It puts me around 11%. All right. So it must be bad earnings that's going to do that, right? Because Micron's earnings were awful? No, they were blowout fantastic, and we will cover that. They were absolutely fantastic.
So, what's actually getting the market down? It's these two rebalancing issues. Cannot say it enough. And if you get off of that topic, this is where you're going to run into a problem because you're going to get flimmed. When you start understanding what the rebalancing issues are, you'll understand why BE dropped 100 points in 2 days. It becomes very clear, and you're just going to go, "Oh, okay. Well, what do I do now?" That's up for people to make their own decision, but for us, when we look at the market, we can see that semiconductors, yeah, you're just sitting there, but other sectors are rotating into, right? And maybe it is getting more defensive, and maybe we will have to start looking at the healthcare side of the world.
You know, we don't have... I don't do a lot in healthcare. We in the community, we own the CNC, and we bought this on the earnings because the earnings were freaking fantastic. It was just insane, the blowout. But if you look at these names, they're doing great. Like if you start looking at UNH and MO. Oh, which is a huge Mike Barry name. You know, these names are just... they're absolutely blowing out. You know, do I really want to chase these when the market's falling down? Because am I going to run into a position where I'm going to get flim flams? Meaning I go low beta and the market's high beta, right? 'Cause it flips back, and then I'm... I'm long healthcare, and then semis are ripping like that. That's not fun. I've had fun before. It doesn't look like that. So, we have to look at what the market's doing, right? I'm not saying that you don't want to look at these names, but you have to understand what they are. Or do we start looking at the homebuilders? I think the homebuilders are much more interesting for us to look at. And why are the homebuilders much more interesting for us to look at? Because I believe you're at peak inflation.
And so the argument is going to be someone in the comments, "You're not at peak inflation because you don't understand the straight... the straight." People couldn't even spell her what, three months ago. Now everyone's like a straight expert on marine life and what's going on over there and how the straight works and their kings with all the tanker friends and everything else. It's nuts. It's too much for me. It's very simple. Oil's dropping. It's falling off a cliff. You had issues with the UN this week. This week the UN, "we got to get out of here. It's not safe." What happened? Oil dropped. Does this look like people are concerned about oil? They're wrong, or the commercial hedgers are wrong, or the speculators are wrong, for the people that think that oil is going to rally back up, wrong, right? Like this is over.
And so if oil drops like this and you start seeing gas like this, and let's go to the gasoline futures, and gas like this, and I'll leave this marked off for time sake, but this is from April, and then of course you have May, and then June, and you just look at the average price of gas, even though it hasn't dropped at the pump, is down about seven or 8%. So inflation's done, man. Like that game's over. So this idea of the raising of the rates and all that, like that's behind us. The only thing that the new Fed chair is going to do is add a ton of volatility to the market, and we can see that, and I'll point this out because I do think it's important.
So here's the VXN, and that's the NASDAQ, right? It's a NASDAQ fix. Yay. But you know, we're at levels not seen since November, or levels not seen since March. Okay. Well, were they good times to buy or are they good times to sell? You could go look at a chart and do that, something fun to do on a Saturday. And then we can look at the VIX and see what's going on there. Do you see panic? Yeah, I don't see panic. What I see is increased volatility and underlying names predicated upon the risk that you're taking, and the market understands that risk. You might want to listen to that part again because everyone's looking at this and saying, "Well, we're clearly going to crater." Does it look like you're going to crater?
Now, here's the other thing that I'm seeing a lot of, and they're right. Tor put out a really good piece on this, and if you don't follow him, I would. He is the chief economist at Apollo, and you can get something called the Daily Spark for free, and he put this out, and he's 100% right. Let me see if I do this weekly, it might show a lot cleaner. So if you take the NASDAQ and divide it by the S&P and take the two volatilities, you'll see the spike here on a basis. Now here's what's so interesting about this, and then of course you can see up here, and you know, this is obviously before time. So, like you'd have to kind of come to really the pandemic to see this, and then, you know, these areas. But here's what's so interesting about this. December 2006 was not a time to sell the market. You would have absolutely crushed it. And then you start looking at June 17th. If you saw the NASDAQ there and you're getting out, you did yourself a huge disservice. When you should be looking at this spread is when you're in a situation where the S&P has more volatility than the NASDAQ. That's when you should be looking at it. So what is actually happening with the volatility, and this is where I think that people are not getting it, and I think it's really important.
So if you look at something like ATR, which gives you the average true range, and this is where people are really getting thrown off because when you look at ATR, right, and again, eventually it will slow down, right? It'll go sideways, we'll come down, we'll trade around, and everyone will say, "See, that's it. I thought I told you it was over. Bob said it's over." So that's what these sound like. So then if you look at something like this, you have to look at this and go, "All right, well, the volatility is increasing." Well, what happened recently that nobody's thinking about? What, like, what's the big thing that changed the world that controls all monetary policy that nobody's even thinking about?
One thing that no one's talking about is that you got rid of Pal, and that Worsh was sworn in on May 22nd. And if you go through charts and you just look at something and you just go to May 22nd and you just mark that off, whether it's this date or just pick another high-vol name like SanDisk, for example, and just mark off May 22nd, and let's go take a look at that date, you will see that the majority of all are up from that. Now, correlation might not be causation, but when you start getting into how that speech went and his first speech, that's when people started to realize that there was an issue here because they understood that he was no, and we went over this two weeks ago. That's when people realize that he was not going to do what we thought he was going to do.
Now, this is really important because that volatility is excellent for us as traders because it allows us to really get in there and trade, but he is going to be great for the market if you're a trader. But when you're not a trader, this is going to be brutal because the problem that you're going to be dealing with while we're getting through these two key issues, and we're on the back end of it, and we're going to get to it in a second here, but you're looking at something like this and you're like, "My god, in 3 days, we went down 21% to back up 21%." And swing traders are just getting absolutely crushed in environments like this, right? And you should be probably be really rethinking strategies in this kind of environment. Like one of the core things that's working really well for us, here's an example. It is. I'm selling a lot of puts because of the ATR out there. That's just ridiculous. But like even on just a normal day, like on this, you know, Friday, selling the puts at like 20, I think we got like 25 on some. Yeah, the 25, and we sold more at 30. It was just such an easy trade. And then I trimmed some at 97. Then of course, at the end of the day, it rolled over. So you have to make, you know, you have to trade it like a stock. But you're... the implied volatility is just getting sucked out of this market. So it makes trading these things super liquid to get involved on that side. But, and that's the majority of it. Meaning like that's the majority of how you have to look at the market right now. And it's always this way when you have these kinds of setups.
So I should probably explain this. So when the NDX looks like this, and I don't know why this thing's super slow today, but when the NDX looks like this, and you have a 12/22 cross and you have an island reversal that I've been yammering on about now for a week, I might think that this is coming to an end, but this is still the hand that I have. So, I don't really want to press bets with like huge equity swing trades, and you don't really use a ton of margin in environments like this. This is really a risk-off environment where this is a risk-on environment where you're at 12, 20, 22, and 55, they're all stacked. Like this is like, "Hey, risk off," like just kind of chill a little bit and wait for it to set up again. Not to not do things, but I've been a lot less active because of what's going on because I just want to make sure that I have enough to deal with when I'm ready to get involved. But that doesn't mean that I don't take advantage of this. So a lot of things that we're doing in the community are taking advantage of the huge volatility and then getting out of the way and then just doing it again. So you're hitting the trade, getting out of the way, hitting the trade, getting out of the way. And you can just see these moves. It's just presenting opportunity after opportunity. It's kind of crazy how when you do it this simple, it's kind of crazy how easy it is to just mark off some of these levels and just watch how they're acting at previous closes, right? I mean, you can just say it. It's pretty obvious here. Mark it off. And when you start to see that kind of stuff, just use that. Just use these ranges, and anybody can do this. For those that are trying to get into the community, it will open up again in July. Just make sure you're on the wait list. Link is in description.
I think the best thing for me to do now with this is to take it into the two major factors that are driving the market. So, let's get to it. Your comments are always appreciated. I just don't see how this is a larger fundamental issue with earnings. So, let's get to it. We estimate around 165 billion of equity selling, bond buying due to quarter-month and June-end rebalancing. This is what sent shockwaves throughout the market. It's got nothing to do with Micron demand destruction. The prices are too high. None of that. That is my belief. You should believe what you want. But this is the statement that really rocked the market. Now let's just get into this so we can understand it. So we can benefit from it. These are quarterly rebalancing estimates. This is done by JP Morgan Flows & Liquidity, just to give them credit. And you can see right where we're at. And when we look at something like this, we have to understand like, when was the last time this happened? Well, they're only going back to March 22nd. And then this, if you take a look at this, would take us into that June 2023. And I personally think this is important to note when the last time that we were even close to this is. So we can always go back to the past because it's really all we have, and look and say, "Well, what happened during that period of time?" And if we look here, you're going to see this, and it's important to get this. It's not an exact science, but this is really your area. So you would have from the 15th over, and then you would look at this little area and say, "All right, well, from the peak where we were to a drawdown, what happened during that period of time?" It doesn't have to be exact. You can actually see the relief that starts coming off the market, and you can see like the little pop that's actually on June 30th after that because if there's another trigger out there, whether it was earnings or a CPI release, whatever they were waiting for, after they get that, they can actually sell into that. Meaning if you have a liquidity event, they sell into the liquidity event. They don't have to wait for their special super special day that's usually the tail end of it, right? They don't have to say, "Okay, it's June 30th, 1, 2, 3, sell," even if you look at the last 10 minutes of the market. It's pretty much what... what they did this time around, but we'll get to that. But when we look at something like this, all right, so there's probably an event here, and then they're using that event as a liquidity event. I wonder if that reminds us of anything that just happened this week. But success always leaves clues, right? So when we go here and click on the top of this, and let's just go to the bottom of that, and what do we get? We get a number on the bottom of there that gets us around 2.78%. So from the top of this all the way down, we're at 2.78%. Well, certainly this is going to be significantly worse, right? So we're going to go to the top of this, and then we'll go to where we closed, and you're going to see you're at 3.6%. If we went to the top of this, to the absolute drawdown over this, it's going to be twice as big. Right? If we came here, you're going to say, "All right, you're at 5%." Okay, so it's 60% more if we went to the absolute worst area. But what I'm doing is taking an area that's not even accurate into that. Right? What area is really accurate is this peak from here over from June 12th over into that, and you take that low, and you're going to get 3.9%. But from the peak to the trough, you get another number, and I don't think June 2nd they were worried that much about the rebalancing, which would have been 5%. But if we look in this area, come work with me, not against me. But if we look at this area from here down to here, you're going to get 3.6%, 6%, which is roughly in line with the 2.7. Right? So there it's not like we fell off a cliff despite, you know, what the world wants you to think and your buddy on Twitter is trying to tell you.
All right, let's look at something else. Let's take a look at the NASDAQ to get a sense of this. We're going just take the top of this again, and we're just going to drop it to the bottom there. Drop it like it's hot, as the kids say. That's going to get us roughly 4%. So all I'm doing is taking a previous high and looking at the previous low during that period where you're coming into June 30th. And I'm not using exactly after it. And the reason for that is because there's an event that'll take place, and then they'll use that event as a trigger. I wonder if anything happened like that this week. Right? Of course it did. So again, if we take this peak up here and we bring it down to here, what do we get? 5.58%. So it's not really the end of the world. It's just kind of something they did two, three years ago, roughly. Roughly three years ago, right? So I think you have to look at that for what it is. Now, that doesn't save this suck salad that's going on up here. I mean, we should spend some more time talking about it, but we have to put it in context, and we can do this over and over again. Even if we look at the bond market, and you have a lot more going on in the bond market, but if you take this peak from in here down to the low, you're going to get like 4.5% from the top to the absolute bottom in yield during that period of time, during this section. Right? So you're basically at June 9th to where you closed. And that's going to show you how much the yield on the 30-year has dropped over that period of time. Then if we go back to 2023, and we just click on the top of this, and then we just drop it down like it's hot, like the kids say. 5.3%. Now you have a bunch of other mitigating factors before everyone starts like commenting like, "Oh, but what about this and Japan and the people selling this, you know, the insurance policies and it's the end of the world and demand destruction." Okay, good luck with that. But at the end of the day, if you just compare to what happened 3 years ago, like the best thing that we have, like literally the best thing that we have is past performance of what happened during a specific period of time. We don't have anything better than that, right? Not your friend's new AI model that's going to spit out how you're supposed to be moving and trading. Like, we just don't have anything better than past performance, right? So, I can't stress this enough. When you go back and look at past performance, well, do you really have an issue? Not really. Well, what happened after that? Well, you have other mitigating factors during this period of time that you don't have during this period of time. You have an AI boom back here. We had itchy. We didn't know, "are you going to raise rates or you not going to raise rates?" Like it's not... you're not comparing exact apples to apples. So you try to take the shortest period of time possible and compare that period of time 'cuz that the shorter the period of time, the less other extraneous variables you're going to have. Right? So that's just one way that I look at it. You should do what you're comfortable with.
Now in front of you is equity risk premium. And what I've done here, this is not mine. There's a Sediment Trader right here. That's who puts it out. I have no affiliation with them, and I've asked if I could use it in the past. And if we take a look here, we can obviously see the green line, and we can see the red line, and the zero, and then you get to negative. And what this is telling us is what is the equity risk premium of the market. So I want to talk about what that is real quick so you can understand why this is so important because to me this is why we saw what we saw. There's a couple reasons for it, but let's just drill into this real quick. So for so you understand what you're looking at, and always very important to me, if you don't understand what you're looking at, then you don't even understand how to read it. You can just look at lines, it doesn't mean anything. You have to understand what they are because then you can figure out how you want to use it or if it has any meaning to you or merit whatsoever. The show's earnings yield of S&P minus the interest rate on the 10-year note. So it takes the earnings yield, not the dividend yield, the earnings yield of the S&P minus the interest rate on the 10-year. The higher the risk premium, the more attractive stocks are relative to bonds. So when we look here, we can see we've been riding this line forever, and then we actually went super negative under here. And we can blow this up, and we can see that we've undercut that. So at this point, not only under the zero, but you're under this negative one. And when this happens during the quarter, that is going to trigger pension funds and life insurance guys that work on assumptions. And I'll explain why.
So, I clipped this out of a pension fund article just so you can understand what equity risk premium is and why you should really care about it. Equity risk premium: excess return that investor demand for holding equities instead of the risk-free assets like US treasuries. So, in other words, if the earnings yield is lower and you get negative for US treasuries, you're not getting any money for taking the risk. And then the question becomes, why you're taking the risk? You see, so a pension fund or a life insurance, they don't care about like maxing returns. They just want to hit their assumptions. So when they get to their assumptions, they rebalance. They're not out there saying, "I'm going to hold Intel," or "I'm going to hold this." They just want their assumptions. That's it. And if they can get there, and we're going to show you that they haven't been getting there, and that's why you need to pay attention to this stuff because it can move the market like it just did, minus the older benchmark of the government, right? And it's so just to get it. And when it's wide, when ERP is wide, stocks offers meaning compensation for their added risk. When it narrows near zero, and we just showed where you're at, investors can earn nearly the same return sitting in bonds with far less volatility, no earnings misses, no dividend cuts, and priority and capital structure if something goes wrong. Metric gain widespread attention. Kim knows the Fed model, which compared yield, 10-year note, gauge of relative stocks, when it's high, when it's low. Um, and this is important because it does matter to large swaths of capital.
So if we look at where pension funds and insurance companies all over the globe are, this is just G4: US, UK, Euro, and Japan. You can see right here, bonds are the black line, equities are the blue line, and you can see where it crossed in here. And right around that 2023 is where it crossed. So again, why is this important? Well, when was the first time that we had any massive selling like this? Well, it was June 2023. Well, that's interesting. That's when equities became heavily weighted more than they were in bonds, very similar to '99 and 2000. And no, I don't think you're in the same situation here. Important just to note.
Now, in front of you is the average asset allocation among these types of funds. And you'll notice something here. So domestic sovereign is this hideous green color right here. And then domestic equities is going to be this like, I don't know, blue-green color, I guess, right in here. And what you're going to note is that historically on the domestic equity side from 2024, and this they only do it every four years, but it will show you to me a pretty interesting scale on what's happening here. They're obviously increasing certain things and decreasing certain things. So this is the least amount of cash that they have if you go back historically. And this is also the most alternative that they've ever had. So what don't pension funds have right now? Liquidity. Because they got rid of their cash, and they're in all these alternative investments, meaning they're in private equity, most likely those kinds of investments, or private credit, things like that. And so what they're doing is they're liquidating what they could liquidate, and what was what they could liquidate, right? They can't liquidate the private credit and the private assets. So what do they... where does it have to come from? And so what they're doing is they're getting out of... and if you look at this, and I think it's really interesting if you really look at it, the domestic side of this, like if... if you look even at the foreign side or domestic sovereign, you can see the differences, and I think it's just super interesting because you see increase in certain areas like high yield, but to me, when I look at like foreign equity, well, foreign equity down the line, you're pretty much in line, right? Like that's okay. But on the domestic side, you're pretty... Oh, so what they're doing is they're taking the money from where they can because they can't liquidate this, and then they're diversifying out. And again, this is over 15 years, but it gives you a sense of what these guys are doing. But as they diminish this position, they become less and less of a factor over time.
You see, most of these guys, these pension funds, never get to their benchmark. So this is a 24-year distribution, and it just shows you the benchmark was, let's say it's their S&P, but it's usually not. It's usually like a 60/40 blend of like stocks and bonds, something like that. But let's just say it's the S&P just to make life easy. And that becomes the benchmark. Whatever their benchmark is, you can see it right here. And then it'll show you the excess returns of that 24 distribution of their subset of where they're at, like which pension funds and life insurance companies they looked at all over the world. And you see very clearly that none of these guys are really ever getting there. So when their equity positions are over, they're going to move. And that's why you're seeing the movements that you're seeing. That's why we were talking about this in the community the day Thursday when we popped up. We knew that they were going to be net sellers because they're going to take advantage of the liquidity. All everyone's watching Micron's earnings. So, everyone's going to pile in. And then over here is just these guys with billions and billions of dollars trying to figure out how the heck they're going to get out of the market. And that's exactly what they did. So, we have a lot of talk about you demand destruction and that the price is too high of, you know, a memory chip, and this can't possibly last. Okay, cool. Let me know how that works out for you. In the meantime, there's a mechanical thing that took place, for lack of a better term. And that mechanical thing triggered massive amounts of selling, and then triggers massive amounts of selling in who? Retail, because they panic. So, retail panics, Asia panics, everybody sells, everybody needs to get out, everybody needs to get out right away. And then you look at the earnings, and nothing's changed. And this is really a very important concept that we just went over because if you understand what actually happened, your life gets a lot easier because now you're not second-guessing, and you're not saying, "it's the man, it's the market," it's none of that. It's just, "hey, we made a lot of money, and we're way behind on our performance, and so we're getting out, and we're locking it in."
But wait, there's more. Russell 2000 graduating class just turned into mid-caps. So what does that mean for you, and why do you care? Friday's Russell rebalance will be one of the greatest in history. 43 stocks graduating from the small-cap Russell 2000 into the large-cap Russell 10,000. A historical runup has left 165 stocks inside the Russell 2000 with market caps over the 5.7 cutoff. Six of them now top $20 billion. So you want to know why some of those tech names got hit so hard on Friday? Because they got kicked out of the index. So all the money that is in that index gets out of those names. That's why some of these tech names that people love have gotten absolutely destroyed. So I think it's time to put this into perspective a little bit.
So we're looking at the NASDAQ, and it doesn't look great. I mean, you have to, you know, if you just go to the old school thinking, right, 12, 22, 55, that's what I use. You can see the volume in the day, and you can see a little bit of the repositioning, and you can see the IWM. There it is. And it's hitting highs. People are like, "Well, that doesn't make any sense." We'll get to that in a moment. But I think that what you really have to think about here is everyone saw some of these names just cratering and going, "That's it. It's time to get out. We have to panic." You know, "abandon your posts." All right. Okay. So, let's go back to this for a sec and just understand. So, we've had the biggest rotation out. Let's do it this way. We've had the biggest rotation out of pension funds in probably a decade. What else did we have? All right, we had the single greatest Russell rebalance in history. This is what you have. This is what transpired. And what happened to the market based upon this? We're down 6% or 5% off the highs. Is that what it is? But it's Micron's earnings. It's the end of the big rally. Is it that or is it mechanisms?
See, this all goes back to, pardon my voice, but this all goes back to the stool. And for me, I'm just going to power through it. And for me, it makes it very clear. Do I have a macro event? Do I have a fundamental event? Do I have a technical event? And so what happens is the tail does not wag the dog. Wow, that's a pretty long stool. Let's just make that a less ridiculous. And so on the macro side, what do we really have? Well, I would say that you may have a macro event because you have a flow situation. So we could call it kind of a macro event, right? Where you have a rebalancing of pension funds and you have a rebalancing of the Russell. We're going to get to a couple of these names. Do you have anything fundamentally wrong? Did Micron miss earnings? Is that what happened? We'll get to Micron in a minute. But did Micron miss earnings? Spoiler alert, no. They crushed. They are absolutely crushing. And so then you'd have to look at this. Do we have a technical issue? Well, I would say the tail doesn't wag the dog. The flow and the rebalancings of these trigger the technicals, which then make people think that they're geniuses, and then they get out of the trades because they click their stops instead of looking at what's going on in the market.
So for us on Friday, this was a really simple decision to make money very early in the day and get the heck out of the way and read a good book and go for a walk. Like that was like the move on Friday. It wasn't to go out there and try to catch the last one-minute move on the spy, which was an absolutely insane move, and somebody's probably going to, you know, get fired over that or get a promotion, whatever. But it was pretty insane. But when we look at it that way, it makes a lot more sense. And I'll give you a great example of this. So, if you go through these names and you're wondering like, "well, why wouldn't I drop?" I'll put any money on it, and you can time stamp the video and cut this part out if you want, but IWM is going to greatly underperform now. And there's only... it's not unrealistic to understand why IWM is going to underperform. And it doesn't mean that we're just going to collapse, but man, if you're looking for a hedge, let me just show you something.
If you ever look at the Russell 2000, anything over 6 billion or 5.7 should be kicked out. Russell 25 largest Russell stocks were up an average of 261% over the past year. BE, which was kicked out, was up 1100%. This is where it gets super interesting. The top five names that are now out are up 418%. And you can see how those names acted on Thursday and Friday leading into this because of the rebalance. And this is really important to get because again, we're always looking for, "oh, it means that this is the end." Well, does it mean that, or does it mean that you have a rebalance? So let's just take a moment to look at what we're dealing with. So we have the IWM, and we... we all know the home builders are also in there. I have this up for a reason. So it... I'm not suggesting the ultimate collapse of it, but I think you have to look at it and go, "all right, well, the home builders are in there. Interest rates are coming down, which they will because inflation has peaked, oil's dropping, etc." But, and you can agree with that or disagree with that. That's up to you. But so you have these names in there in the IWM. But that's not going to do what Bloom did. Like that... it's just not, right?
So when we look at something like Bloom, and I'm going to clean all this off. What we have to understand when you look at a chart like this is you had 60 million shares kicked out. Just kicked out. And this is where it gets tricky because you're at a spot where you're like, "Oh, I'm at 350. Now I'm at 250." Clearly, they're getting out of these names. Like, this whole trade's over. I knew it. I knew it was a bubble. My buddy told me was a bubble. It's definitely a bubble because Bob's never wrong. All right. Well, Bob's wrong because here's the problem with this. You have flow mechanisms that are triggering this. So, if I have pension funds that are long BE or long equity, and they're blowing it out, and at the same time they're blowing it out that the IWM is blowing it out, how do you think that's going to go on some of these names that are trading wide, like a million shares? Well, this one's like 8 million shares. And then, oh, by the way, here's 60. Like, you have to understand what's really driving this because then you can make the right decision.
Now, no one's going to know when it's a top, but this is where technical analysis can really get people in trouble to an extent because if you don't know the underlying mechanisms, you're going to look at these names like BE and go, "Oh, that's the end of the world." Is it, or is it a buying opportunity? Right? So, did anything fundamentally change about BE? Look at CRDO. People loved CRDO. Look at the end of the day on Friday, and then you can see, and these are names that got kicked out. All right. So, we went from 300 to 238. And you know, may... maybe there's more behind it. Maybe they're not done yet on the, you know, on the pension fund side, but on the, you know, rebalancing side, they're probably done, maybe, but then maybe Monday you have some more rebalancing by the people that have to mimic that fund, right? So like if you have to mimic that fund, and then you look at all the layers to that, and then you go, "all right, well, I have to mimic, 'I see, yeah, the index fund. I have to mimic this,'" right? So, if I have to mimic this as, you know, part of my portfolio, like let's say I'm running a small-cap mutual fund, and I have to have a certain percentage of these names in so that I'm at least mimicking it, and then I can tweak the percentages. But if they get kicked out, I can't have them anymore. So maybe there's more pain there. You know, no one knows the answer to that yet because, you know, the guys that are running, you know, a fund like Alger or whatever, they're not going to tell you. So for obvious reasons. So we, you know, you have to be cognizant. You can't just go, "Oh, it's Monday. Let's get involved." But we have to look at these names and go, what has really changed? STRL, you broke down. This thing never trades like this. Like all of a sudden, like here's 5 million shares. I would love if it had liquidity like this, right? But, you know, you're trading on half a million. So, oh, here's 10 times the average liquidity. And why are they doing this? Because they're... they got to get out of those situations. They got to get out of that index. So, when they're getting out of that index, and the index is rebalancing, then Monday you come in, and then those guys have to rebalance. So, maybe it's like Monday, Tuesday, Wednesday. But to look at this and say that I think it's over because of what's transpired, I think you're doing yourself a huge disservice. And what I would do is look at this and make better decisions predicated upon that. It's not a coincidence that every single one of like the top nine names got absolutely smoked. DO got smoked. SMTC, you know, we just run through them real quick and take a look, and you'll see it. Okay, got smoked. Actually, that should have got hit a heck of a lot harder, but maybe it's a little thicker than that. Maybe they had more buying there. Sure. It looks like had a lot of buying right there, doesn't it? Off that open.
So, that might be an interesting one to watch. FN was in there. Look at that. Look at the selling in that. Look at it. Right.
I mean, that kind of looks like a dumpster fire to begin with. But some of these other names such as RMBBS and you look at something like that and everyone's like, "Oh, well, that's clearly over." You know, is it really? I mean, or is it to the fact that you had all this selling that people knew was coming and that added to it? And quite frankly, the drop there on a percentage basis versus some of these other names is nothing. ONQ got kicked out as well and you're sitting under the 55, but now I have a Dogee and I think something like that's super interesting. Like how the heck do you get a Dogee on a day when you're being booted out of an index and then you look at the volume on something like that and yeah, it's huge. So then we would drill into those names and maybe we can find some ideas. This is just one thing that added to the suck salad of the pension fund rebalancing. And so when we put this all together, you can understand why it was like a week where people were wondering what was going on with them. Like when they were looking at their portfolio, they just didn't know what they were coming into.
And then it fits perfectly into why with something like Micron, people are like, "Well, we should have gone up." And the fact that we're not going all the way up, then that means that we're definitely going to go down because, you know, demand destruction. So like, this idea of demand destruction just makes me laugh so much because it's like, oh, they want our product so bad that we're going to destroy demand for it. It's not a freaking beanie, baby, right? Apple phones don't exist without memory. Like, we'll get to that in a second. But you have to think about this. Like, all these people demand destruction. I don't even know what you're talking about. Like, that doesn't even make any sense. Like, oh, it's so expensive. People aren't going to use it anymore. Really? Dell's not going to make computers anymore because memory is too expensive. Or are they going to raise the price? Oh, well then consumers weren't going to aren't going to buy it. Oh, they'll buy it. They might pay more. They might do some stupid finance, but they'll buy it, right? I mean, think about the amount of people that buy a new Apple phone because it turns orange. And you think people aren't going to go out there and buy something that they need to be more proficient or more productive. Doesn't make any sense.
Now, let's take a moment and just look at Micron and the earnings and what exactly happened. Revenue is 41.46 million up 346% beating estimates by 5.77 billion. EPS non-GAAP 2511 beat by 440 up, 1200% from a year ago. Gross margins 849 company record up from 39% a year ago. Guidance 50 billion plus or minus 86% gross margins crushing estimates. Data center revenue exceeded 25 billion. SSD revenue more than doubled sequentially. So when we're looking at this and everyone's telling you that it's over, are they the same people that told you that to buy it before it went up and did what it did? Cuz if they're not, they have no idea what they're talking about, right? So just because something has done this, you're going to look at this and say, "Oh, well, clearly it it's over." It it's mindboggling to me that people would think that way without actually understanding what's going on.
And then you'll hear that, oh well, the hyperscalers can't continue to spend. Are you sure about that? Because they seem to be raising billions and billions of dollars. Google came out and stated that they're going to raise what 30 billion in equity offerings so that chips but you know Bob on Twitter's telling you that no it's over because people at Google are going to be upset the so that for therefore they're going to have to stop like this has never been about return on investment or return on equity on Google. It's about maintaining their dominance. And so people have constantly been looking at this the wrong way. I've been saying this for some time. People are looking at like Meta and going, "Well, they eventually they're going to have to figure it out like or else they're going to have to stop spending." Meta tried to turn people into a giraffe. Meta changed the name of Facebook to Meta to try to make you a giraffe. And you think that he's going to stop spending? Like, you got to start connecting the dots. Think of the amount of money that Amazon's actually making off of this. They're like one of the only companies that's actually making a ton of money through AWS on this. You think they're going to stop? Like, none of this is going to stop because you think it's going to stop. It's going to stop when it stops and no one at Amazon is going to call you and say, "By the way, we're cutting capex." So, you're going to get to know it like everybody else. And the way to see that is when you say it.
And it doesn't mean that these names can't go higher or lower, but they're not the driving force of what's going on here. The driving force is competition and replacement. Meaning, if Google doesn't spend money the way it is on Gemini, then Anthropic's going to come in and search is going to be have a problem, right? So, they have to spend. they it's not really an optional thing. The amount they need to spend that could be optional. But to look at these companies like Micron after earnings and say, "Oh, well that's, you know, that's it." You know, yeah, that's definitely the top. Was this the top back here when it came out with earnings and it doubled back here? That was 473. Or this was it when it broke out here in December when it was 286. No, this is the top because it just is. It defies any kind of logic.
So, if we look at what really is happening out there, you have to look at it. And this is the way to me that you should be looking at it and you need to do what you're comfortable with. You have to think about it and say eventually other people are going to come out to DRAM. And my whole thing has always been that the more I look into it, the more I actually think it may be Intel that actually eventually gets into this. Especially when you look at who they just hired and people will tell me, "No, they can't." Yeah, they can. It might just take them a very long time to do it. And you know, meanwhile, SKH Highix is going out there and they're building out what they're doubling production over the next five years. Do you think they're doing that? Because that this is like a flash in the pan. That's why you're seeing names like ASML, Lyft the way that they are. That's why people are buying KAC the way that they are. It's why they're buying AAT the way that they are because they actually understand that you can't have any of this unless you have the equipment. This is all the equipment, right? That's why you're seeing names like Lamb Research the way that they do, right? These things are on fire. Why? because you need them or you can't do the buildout. And these guys are building out. SKIX is not saying they're not going to build out. Samsung's at full capacity and paying people what half a million dollars in bonuses. And you think that they're doing that because they see a slowdown around the corner. But EWI, but I read an article that somebody said that there's an insurance policy that was sold and you know, mom and pop are buying the stock market. Okay. This whole industry, this whole sector is trading at what nine times earnings. These names are actually growing faster on earnings than the stock prices are going up. Historically, they're actually cheaper now, if you went through this on a PE basis, than they were a year ago. That's how slow they're actually moving up versus their growth rates because nobody believes it. And you can go do the math yourself and take a look at it.
This is a really important concept to get that you don't equate something, right? You don't equate a cause on what happened. Let's say that the cause of the market dropping, right, is because they're getting out of AI. No, the cause of the market dropping is because you had an IWM rebalance and you had pension funds that absolutely slaughtered it and they need to lock it in because the equity risk premium flipped. That's why your people are getting out of the market. Not because Micron's definitely I know the top because my buddy Mikey works there and Mikey said that's it. Okay, good luck with you and Mikey. Let me know how that goes in here. If we understand what it is, then we can take advantage of it. If we're just going to extrapolate it out to something that it's not, you're going to get smoked like everybody else. It's up to you to make that decision on what you want to do.
I think when you look at a company like Apple and Apple's going out there this weekend and saying, "Hey, I know you blacklisted this Chinese company, but we really want to buy memory from them and we want to put it in all our iPhones and you think that this is over." Like, this isn't over. Nothing is over. It's not over. And what we have to do is understand that. Now, I don't believe that Apple's going to be allowed to do that. That's for sure. Or there's a reason that they blacklisted it. and they didn't blacklist a company so that someone could say, "Hey, we know you did this, but we don't want to do that." So, that's going to stand and then Apple's going to have a problem. And this is why Apple's dropping the way that it is. See, everybody keeps saying that it's the hyperscalers that are in charge. It's not. He who makes the gold, who has the gold makes the rules. Well, the gold right now is Micron SanDisk. And we can see this. We can all see it, right? Western Digital selling off a lot. Seagate selling off a lot. And then you wonder why, right? And then you're going to have to look and see how that rebalancing goes when this week and does that rebalancing pick up or what does pick up. So index sector stock is really how I look at all this when I look at the market as a whole. For me to understand this and say to myself that it's over I think is a huge mistake. I think that if you go through this and you use logic and you're willing to let this stuff settle in that you could be looking at a very different situation in 3 to 6 months.
For me, when I see something like SanDisk, for example, and people like, "Oh, it's at 1100. Now it's at nine." Okay, man. Like, it's been ripping. It started at 300, but you're going to pick when it's over. Was it over here when it broke 351 and closed under the 55 or no? It 4x from there. So, if it breaks under the 55, you know, these are the decisions that people have to make as a trader. Are you going to buy it or are you going to say, "No, it's over." There are the decisions you have to make. It's no different than looking at Western Digital and saying the same thing like, "Oh, no. It's this is definitely it's definitely over. Is it or is it in a situation where it's going to come in so hard that then I'm going to be able to take advantage of that situation and go from there? No, it's demand destruction because some guy on Bloomberg said it. Okay, that's it.