In this post, I’ll focus on setups that I’m monitoring for both long and short positions. With a chart and short write-up, this is a quick way to scan and plan potential trades.
These ideas are the end result of my process to identify stocks offering the right combination of growth fundamentals along with a proper chart setup. Live alerts are sent to Traders Hub members only.
Stock Market Update
The cost of capital is in the crosshairs as the Federal Reserve meets this week and investors question the payoff of AI infrastructure spending in a high interest rate environment. While the Fed is widely anticipated to hold rates steady this week ahead of midterm elections, the most recent consumer and producer inflation reports will keep pressure on tighter policy in the months ahead. At the same time, jumping longer-dated yields are increasing the cost of capital for AI spending that’s being increasingly funded with debt. Credit spreads on more indebted AI-related borrowers are adding to the cost of financing, with some companies like CoreWeave seeing bond yields hit distressed territory. The chart below shows CDS spreads for various AI ecosystem stocks, which represents the cost to buy insurance against issuer default.
While stocks linked to the AI trade are pulling back since the start of October, there’s been a turn in market breadth. Given the weight of AI-linked stocks on the major indexes, weakness in the S&P 500 and Nasdaq are masking strength in other sectors. In fact, an ETF tracking large-cap value stocks is hovering right at record highs while large-cap growth has pulled back nearly 7% in the past three weeks. Along with the improvement in breadth, we should watch for signs that the AI trade could find a bottom soon. Semiconductor stocks are heavily exposed to AI infrastructure spending and reflect investor sentiment around the sector. The Roundhill Memory ETF (DRAM) tracks memory stocks like Micron Technology and SK Hynix, and is testing the lows from the selloff into July. Many stocks across the space are also in the process of testing the summer lows, which could spark a rally from price support.
While there’s been plenty of concern swirling around the AI trade and threat to the economy from a deceleration in related infrastructure spending, I believe recession fears would be reflected by a broader pullback in equities instead of the rotation into the average stock that’s actually taking place.
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