The Pain Trade Hasn't Even Started

Between the Lines - Vol. 13

Good morning,

Brazil went out to Norway, which tells you everything about what this summer does to crowded consensus longs. Dare I say, as an Englishman, that England is another overcrowded long? For the Belgium USA game… it will all depend on which Belgium turns up. If it's the one from the first 80 minutes against Senegal, the USA wins 3-0. If it's the final 10 minutes version, the US are in for a tough game. Spain Portugal game… I just don't think the young Spain team have the experience despite being incredibly talented. Not a strong stance, but I will take Portugal to qualify.

Speaking of which… last week I said buy Mag7, and it worked out fairly well, closing out with their first green week since late May where the cohort sold off just shy of 15% over four weeks. Mag7 closed up roughly 5% on the week vs SPX +1.7% and NDX +0.7%, which is not exactly a marginal relative move. That is the kind of week that makes everyone who “prudently reduced exposure” start checking their charts at dinner and pretending they always planned to buy them back lower. I am not moving the goalposts either, July SPX target stays the same at 7,700, and the August overshoot I floated last week is still on the table… positioning hasn’t given me a reason to shelve it.

Quick recap for anyone who missed Vol. 12 (The Mag7 ATM Is Running Out of Cash), because I'm not going to re-argue the whole thing. The call was never Mag7 is cheap. The call was that Mag7 had become the market's ATM, the most liquid, profitable, highest-quality companies on earth being sold to fund every shinier trade in the tape, and that all of that selling had created room. Anyway… this week is about what's changed and how I’d trade the next leg.