AI CRASH: Stop Trading Until You See This!
In a Nutshell
Markets erased $500B with NASDAQ testing critical 700 support, prompting the trader to profit $14.6K shorting Dell and Coreweave while warning that overleveraged longs will get crushed if support breaks. Fed rate decision on Wednesday is the key catalyst, and the speaker stresses staying light with position sizing to weather volatility rather than panic selling. Trump’s spending and Middle East tensions are driving yields to 5%, which threatens to push mortgage rates to 8% and reignite inflation.
These notes were generated by AI and may contain inaccuracies.
Markets experienced significant movement with over $500 billion erased. Friday saw a big gap up while today brought a decent gap down. The NASDAQ hit lows of 701, which represents a critical support range. Aside from the leg down to lows of 656, the NASDAQ has remained above 700 for the past three to four months without making new highs beyond 740 for QQQ.
Markets are incredibly irrational and are always looking for a reason to recover. There is an 89.5% probability that the Federal Reserve will raise rates according to the Federal Monitor probability tool, though this cannot predict what the Federal Reserve will actually do.
A nice gap down occurred overnight. Dell was the big trade, hitting lows of 53529 during the pre-market session with a $10,000 profit achieved. The position was 200 shares short with an average price of $5371, representing approximately $100,000 shorting Dell.
Coreweave was another major position with a $4,600 profit on an overbought reversal. The short position was 900 shares representing about $162,000 actively shorting Coreweave. The focus remains on whether NASDAQ breaks support, which would cause everything to sell off.
Those complaining about red days or markets pulling back are the ones who are overleveraged at overbought levels and did not prepare. Markets selling off presents more deals, and the only people who get upset are those who did not prepare and overleveraged themselves at overbought levels.
The speaker trades with shares rather than options, noting that those bothered by the pullback are trading with options where their call options are going against them. This serves as a reminder against using leverage vehicles.
AI stocks including SKH, Coreweave, NBIS, and LRCX are all experiencing significant declines. Nvidia saw a decent pullback but remains a great long-term investment. This correction is considered long overdue. Micron is down 5% after rallying to $50 last week and is now approaching a previous support range.
The memory chip stocks and core AI stocks are down 5-10%, but these are incredibly volatile stocks that are back at levels from a week and a half ago. The focus should be on preparing for the Fed rate decision on Wednesday rather than overreacting to current movements.
Trump claims AI needs a strong president as guard rails and that his administration stopped Anthropic's Dario from doing bad things with criminal and regulatory power over AI companies. He states that all AI needs is a strong and smart high IQ president and the US has that in spades.
The speaker finds Trump's approach distasteful, noting his ability to make everything about himself has become problematic. Trump assumes all success of AI companies is because of him, which the speaker believes will hurt Americans more than help.
Yields have reached 5%, meaning those with good credit are looking at possibly 8% mortgages. The 10-year yield is the benchmark for 30-year loans. The US cannot afford higher yields, which are rising because Trump keeps spending money along with uncertainty in the Middle East and inflation concerns.
Trump sparked the war in Iran, causing the Strait of Hormuz to begin closing, which led to oil prices rising, followed by inflation and then treasury yields rising higher. Tanker crossings through the Strait of Hormuz have not recovered and remain incredibly low.
Michael Bur claims OpenAI and Anthropic are faking AI warnings due to slow growth ahead of IPOs. Both companies are supposed to IPO but concerns exist about capital bleeding and lack of path to profitability. Those who get angered when discussing AI pulling back are described as leveraged and desperate for the rally to continue.
The Fed rate decision on Wednesday is the main focus. There is uncertainty whether the Federal Reserve will raise rates, as Kevin Wars is more on Trump's side and may convince other Fed members to vote for a pause instead of a hike. The speaker shares both sides of the argument despite having a bias.
Position size should reflect uncertainty, meaning being light enough to tolerate volatility rather than panic selling. Markets are at a previous support range and do not have to continue selling off.
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