A simple recap
What I’m watching:
There is growing concern about AI costs and more crucially if the hyperscalers can sustain the current rampant pace of CapEx on AI buildout.
Right now, there is no hard evidence to suggest hyperscalers are actively pulling back, while MU earnings turned out to be even stronger than expected on 6/24.
This presented a situation where the customers (hyperscaler megacap tech) have been spending a ton of money on CapEx and getting heavily punished by the capital markets for the CapEx, while the memory vendors and various other picks and shovels sellers are the only ones making bank on this and getting rewarded by the markets.
When will the first megacap look at this and say, “hmm I wonder if we should take it slow and walk it back a bit, since we are spending a lot of money while getting heavily punished in the stock market”. When that comes we might see an unwind of the current long SOXX short IGV trade.
There are already some signs leading up to this: SOXX has been effectively stagnant over the past 2 weeks, despite a very strong MU earnings on 6/24. And the megacap tech stocks actually rallied for a change on Friday 6/26. Although this could be attributed to month end rebalancing, so we will need to see how it plays out next week.
The market might start to trade this in anticipation of a turn from the mega caps in their earnings report in late July. Right now SOXX is at an interesting spot that could be the start of a reversal.
A position or thesis
I decided to enter a very small short position on SOXX, expressed via the SOXS. Originally I wanted to enter an options position on SOXX or MU, either a long put spread or a short call spread, but the liquidity wasn’t great and spread is wide so I decided against that.
SOXS is leveraged 3x short ETF so there will be a volatility drag as well as decay through its holdings, which is why I entered very small effectively viewing it as money I’m willing to lose fully. In general, I don’t do a lot of shorting the market.
What I got wrong or updated
I was in a QQQ put spread 700/660 with 9/18 expiry entered prior to this week. This was conceived as a hedge of my existing holdings.
I realized this week that the QQQ itself might be choppy instead of suffering large sell-offs from here, if it is just a rotation within tech from the unwind of the long SOXX and short IGV trade, therefore the hedge with QQQ put spread is likely ineffective. I exited that position with a small profit.
Other things on my view
The Warsh Fed was perceived to be hawkish but to me he seemed more neutral than hawkish or bearish. His proposed change to the communication cadence indeed increases the risk associated with the rates market and the broad market in general.
Iran US MOU appears to be at risk over some escalation over the weekend. Does this fail completely or are they able to salvage this?
20260628 4:43PM CDT
The Ephemeral Tourist 