Is the AI Trade BACK?! The next move will shock investors

There is a massive shift in the market right now as the NASDAQ hit an official correction last week and chip stocks hit an official bare market with one of the biggest AI hedge funds blowing up and the short setup that I told you about in my last video. You could see the gamma exposure for the S&P sitting at 7,300. There's a chance that we take out June lows. That turned into my biggest trade of the year and by far my biggest short ever in my career. I sent out the details of that exact same trade in the Discord the day before FOMC and I ended up closing it during the FOMC live stream. I have them up for long-term analysis. Oh yo, I wonder if this trade can turn into 100K today. But I'm not here to talk about yesterday's money. Based on the news that just dropped last week, the market is handing us another opportunity. And today I'm breaking down exactly what happened last week, what is coming up next, and the exact trading and investing strategy that I'm looking to play from here. So, no more long talk. Let's get right into it. As I said, QQQ hit an official correction last week, down 11% from highs, and chips are in a bare market. This is the setup that led to my single biggest trade of the year. Now, the extent of the drop in the NASDAQ was 11 12% from top to bottom. And chip stocks hit an official bare market down 25% from top to bottom as we rejected off the 50-day moving average. And I said, I can't find an instance in SMH, which is the semiconductor ED ETF where we reject the 50-day moving average, closed below it significantly, and not visit the 100 day. And we did hit the 100 day. And yes, I bought QQQ and I bought SMH as well. More on the plays later. And Mag 7 earnings were absolutely shocking as all of the Mag 7 minus Nvidia already reported. Now you guys remember because we did a video that Google actually went negative free cash flows and this tanked the stock by 7% the following day. Meta also almost went negative free cash flows, but they did have an earnings miss. And you can see here that Google dropped 7% the following day and Meta dropped 8% the following day. But here's the kicker. Amazon and Microsoft had absolutely monster moves to the upside after earnings. Let's start with Microsoft here because what they did was absolutely miraculous. All along we've said that companies that are raising capex and that are killing their free cash flows, the market is going to punish them. We saw that with Meta. We saw that with Google. However, Microsoft is the first hyperscaler to reduce their capex. You can see here they lowered their Q4 capex expectations by about $20 billion. And not only that, but their free cash flows were super healthy at almost $20 billion. And if that wasn't enough, Microsoft Azure cloud revenue grew 43% year-over-year, better than the 40% expected and surpassed hundred billion in revenue for the first time ever. So, not only did they lower capex and not only did their free cash flows come in healthy, but they are actually boosting the revenue from AI. And one of the biggest days ever for Microsoft in its history, 15 12% up day the following day, another 3% the day after. Another Mag 7 that was rewarded because they did not significantly increase their capex was Amazon. And their cloud revenue grew 37% yearover-year. And as mentioned, because Amazon does have a very heavy retail presence, their free cash flows look very different. They are more cyclical. So Amazon routinely falls into negative free cash flows from quarterto quarter. Very different than Microsoft Meta and Google. They also saw the highest ever IBITA, the highest ever net income, highest gross profit ever, and the highest earnings per share ever. So while we didn't know which of the hyperscalers are going to raise capex, it could have been all of them. and we didn't know who would be the first one to cut their capex like Microsoft. This is proof here that one they're monetizing AI and two if companies actually cut their capex or keep their capex in line with expectations the market will actually love it. And while it feels good to get paid on Amazon and Microsoft as Microsoft turned into one of my largest holdings we're not all going to be rewarded from the hyperscalers at the same time. Like I said, Google crashed and Meta crashed after earnings. However, for those of you long-term investors, this should prove to you that you should never abandon companies that generate cash this easily. And because of what we saw with Microsoft and Amazon, Google and Meta are lagging, but I think they are still an opportunity because like I said, either the market will absorb the raise in capex and will realize that like Amazon and like Microsoft, these are the best companies ever to exist. And once these companies stop spending massive amounts of money or at least show the market that their spending is in line with expectations so that they don't surprise the market that these stock prices will get rewarded very heavily in the short term. Now Google has recovered very nicely from that post earnings drop but Meta does not have the cloud business that Amazon, Google and Microsoft do and it is at the same price now that it was in March of 2026 when the Iran war first kicked off. In my opinion, obvious opportunity. And before I get into my strategy currently, we have to answer is the AI trade back on. And in my opinion, yes, but it will take some time. Broken charts will take time to recover. There was a lot of forced deleveraging that occurred in the market. And unfortunately, forced deleveraging and clearing out a lot of the margin and a lot of the leverage is a necessary feature of the market to continue going up in a sustained bull market. So when we take a look at the AI trade, the absolute devastation that occurred in June and July, whether we're looking at chips, whether we're looking at photonics, whether we're looking at data centers, you name it, every sector of the AI buildout got hammered hard in June and July. And a lot of this was forced deleveraging. So there was a ton of margin used. And we know that a lot of funds and a lot of individual investors were getting liquidated on that margin or were getting margin called on the way down which perpetuates even more downside price action. And this is eventually what led to Leopold's fund being forced to sell all of their assets. So for those that don't know, Leopold Ashen Brener is this young prodigy who convinced a bunch of rich people to give him money because he had ties to Open AI, Anthropic, etc. and he basically created an AI hedge fund. And the AI hedge fund was long AI and short software. And that couldn't come at a worse time. He took about $250 million all the way up to about 45 billion. And then June and July hit. And reportedly he was using about 4x leverage. And who gave him this money? The prime brokers such as Goldman Sachs, Bank of America, JP Morgan. And obviously in a bull market, everyone is a genius. Then June and July hit. Obviously, we had a string of events like the topping of the Korean market, SKH Heinik's missing earnings, just a general slowdown in the AI buildout trade, summer seasonality, a new Fed, and reportedly he lost 35 billion of the $45 billion at the peak of the fund. Now, those banks were not happy. Goldman Sachs, JP Morgan, Bank of America. So, they told him, "Hey, you have hit your maintenance margin requirement. You have to put up more money." He sends out a letter to investors saying, "Hey, can you guys front me some more money?" They didn't respond in time. And here comes Ken Griffin from Citadel. Yes, that Ken Griffin. And he brokered a deal to buy the entire public book. So, essentially, Citadel bought all of these AI stocks at the bottom. And since then, we had the mother of all bounces with some data center stocks going up 40%, you could see SOXL was up like 47% in 3 days, but nothing really fundamentally changed on the way down. And nothing changed from this little bounce up. There isn't anything fundamental that actually changed. We had a historic unwind on the way down. If we take a look at the momentum ETF here, you could see this historic unwind. And these stocks, the data centers, the AI energy stocks, they didn't become better businesses overnight. This is just a mechanism of the forced selling pressure being over and hitting a local bottom. And don't forget, we also had a record number of Korean traders liquidated as well. So, in my opinion, the market is still shaky here. Broken charts need time and confirmation. When I look at a core, yes, I do think that this is an opportunity here. And obviously, we did hit a major support level or a major demand level here, but this right here is a big distribution pattern and this will require some time to break out of. Same thing with the semis for instance. Another thing is the market may still be in the process of testing the new Fed. Kevin Walsh had his second FOMC last week and there's a clear communication shift in the Fed where they're sharing a lot less information. The speeches are a lot shorter and I don't think that the market thinks that the Fed has established credibility here. The Fed did hold rates, but Kevin Worsh opened pretty hawkish saying that inflation is still extremely high and that is their main goal. But he also welcomed the rise in bond yields and said that the market is going to do the tightening work for the Fed. And because of that, the 10-year hit a new high in 2026 at 4.74. And more dangerously, long-term rates have hit a high that we haven't seen since 2007. The market is also lopsided here. So although we did have a very successful short on the S&P 500, as I said, the S&P 500 is still trading sideways. And when we look at these metrics here, whether it's the market testing a new Fed, this is based on the S&P 500, or whether we're looking at midterm seasonality, where before the midterms, we tend to see an average drop of 17%. This is based on the S&P 500, not the NASDAQ. And it's clear that the market is super lopsided right now. The S&P 500 is less than 2% away from all-time highs. The NASDAQ, as we said, did drop minus 11 12% and is still down about 8% from all-time highs. So although, as I told you before, when we get 10% down in the index, I always make a habit of buying it. To me, that's an asymmetric bet. And I also dollar cost averaged in the chips bare market, which takes me to my strategy right now. What I'm looking for to bank and the main thing that I'm focused on here is where is the asymmetry. I'm more focused on strategic capital deployment in asymmetric situations and asymmetric opportunities where the riskreward is skewed in my favor. Here's an example. If the NASDAQ is down 10% and I bought it, is that a bad buy? Historically, you have never lost money in that scenario. If chips hit a bare market and say that the S&P 500 does drop 5% from here and the overall market does go lower and chips get to the 200 day moving average over the long term, will I regret buying SMH down 25% from highs? No. To me, buying a bare market in mega cap chips is an asymmetric bet regardless of if this is the bottom or not. This is not the time to bottom hunt. And I'm not swinging long yet. There aren't a ton of swing opportunities long here in my opinion. And I've been saying this for you guys tell me the last month and a half, two months. So here's where I see the asymmetry right now and some sectors and stocks that I'm looking at. So chips obviously that are in a bare market. Yes, you can invest in SMH or SOXX. Here's another tip. Socks Q is a smaller version of SOXX if you do not want to trade the leveraged version because SOXL is a triple leveraged version and you can make a lot of money but you can lose a ton of money too in a triple leveraged ETF. So a a good middle ground where you have a lowpriced ETF that tracks SOXX or SMH that is not leveraged is SOXQ. And here are some individual stocks that I'm looking at. Broadcom, Intel, ARM. Now, why these stocks? Well, because if you're a fan of this channel, you know that I like monopolies or near near monopolies. And Broadcom holds a near monopoly in AI custom accelerators and high-speed networking. Intel has government backing to basically be the TSM of the US. And this process will take a long time to build out. But I am bullish in, you know, if TSM is a monopoly and we don't have anything like that in the US or outside of Taiwan for that matter, then the government pushing Intel to be that. I definitely want to be behind that initiative from an investment perspective. And ARM has a near monopoly in phone chip design. From a fundamental perspective, you could see here that 10-year Kager on Broadcom is 25%. That is insane. almost 20% return on invested capital and it's trading at a 24 PE. If we look at ARM, you can see the gross profit margin is 97% because they are just involved in design. They don't actually manufacture anything. Highest cash from operations ever, highest free cash flows ever. This company barely has any debt and is currently down 50% from highs. But as I said, these charts that have extreme distribution patterns, they are going to take quite a while to get fixed. And I do want to see a breakout and confirmation on some of these stocks. Two monopolies I'm also invested in already, ASML and TSM. Nvidia needs no introduction, but ASML provided a nice 23% discount from highs. Very similar on TSM. You can see TSM's revenue, IBIT, gross profit, net income, cash from operations, free cash flow, earnings per share, very similar on ASML as well. Now, in the AI buildout, there are companies where the backlog, meaning the revenue that they have yet to unlock, is just about equal to their market cap. And you will find this a lot with the data centers. So, if you look at Nebus for instance, its backlog is $50 billion. It has a deal with Microsoft, with Meta, with Nvidia. But if we take a look at its market cap, it's 45 billion. Now, Coreweave has almost $100 billion backlog and its market cap is 39 billion. And these stocks are going to be volatile both on the way up and on the way down. But if we've seen anything from the hyperscaler earnings, compute is basically in demand right now at a level where they just can't seem to catch up. I think the cash generators are also asymmetric bets, but that, you know, you guys don't need me for that. Meta and Google are still lagging behind, still buys in my opinion. and the AI beneficiaries. So stocks that are in the software sector where AI will act as a beneficial layer as opposed to a threat and stocks that come to mind. I've talked about Service Now. Also, cyber security stocks have seen a nice discount here. So, I'm not quite ready to pull the trigger on Paulo Alto Networks or a stock like Crowdstrike, but at some point, these are stocks that will get to a level where where in my opinion, they'll be discounted too heavily and become asymmetric opportunities because these stocks are not going away and AI is just going to make their products better. So, in summary, I'm only focused on asymmetric opportunities here, stocks where I don't mind if they drop further at this level. I make a habit of buying the indices every minus 10% as I've been telling you guys. I will likely be looking for another short soon at some point. As I said, the biggest trade of my career came off of the analysis that I gave you guys in the last video. I'm not saying I'm going to replicate this every time, but we've been doing a great job hedging hedge the market seven times so far in this cycle. And if the S&P finally breaks down and we do get a premidterm drop in the S&P, that is 100% a back up the truck situation. And in my opinion, it is not a good time to swing trade just yet, as we need confirmation from the charts. If you want to know exactly when I pull the trigger on shorts, when I pull the trigger on my investments, and when I start swinging trading again, the alert will go out in the traveling trader discord. As always, the link is both in the pin comment as well as the description below. I go live at market open every single morning. Subscribe to the channel, hit that notification bell, stay safe out there, traders. Peace.