Phase 3 Is Just Getting Started
Between the Lines - Vol. 17
Good morning from what is still a very sunny England,
Another interesting week with SPX closing at 7758, leaving it with 242 handles from 8000 and over 400 above the low, where I thought the momentum unwind still had more work to do.
I know I mentioned this in my last post, but for those who missed it, I basically gave too much weight to 7200 during the dip, should’ve monetised more of the hedges on the way down, and the market chose the route I had assigned less probability to. I can spend another page explaining how I remained long throughout, but I suspect most people reading this understand the difference between owning hedges and running a short book. We live, and we learn…
I think the most interesting thing since my last post is that this has not been a clean return to the normal AI trade. NDX gained just over 5% last week, SPX made another ATH, and the VIX ended the week with a 14 handle, but some of the largest moves came from software and Mag7 names squeezing higher while a collection of shiny AI names traded lower. You can see the same thing in momentum. L/S momentum factors are blowing up because software has ripped while semis have been hit. Maybe we are seeing a reversal in momentum - the low momentum switching to high momentum and vice versa…
Anyway, the new positioning data is more useful than discussing the index itself. In my last post, I said I wanted to know whether the buying was from cover bid and call demand, and whether it was moving into proper long buying. I now have enough new data to start answering that question.
It also gives me a good excuse to revisit my most recent basket - Phase 3 AI. This is a basket with 15 names that I shared back in March, which is now up 36% with 14 of 15 names higher.
I have not written about it much on here since inception, which is surprising given its return and contribution to my NAV. The first move came as the market stopped treating software as an obvious AI casualty. Two positions have doubled, and another is up over 90%, but interestingly, the thing I bought the basket for has barely started showing up in numbers, which leaves me thinking we might be just at the beginning of this trade.
