Using AI for DFC, and ugly tape action, grade B-

The Thursday after NVDA reports earnings saw a big gap up, and a sharp reversal. If stocks can’t go up on good news, when can they go up? PLTR was another recent example with very good earnings, gap up open then a sharp decline.

AI does a decent job giving range of discounted cash flow DCF valuation. Used to be that it took a good deal of formal education, plus field training to get a half-decent DCF valuation estimate. For amateurs, this often involved guess work.

Like almost all AI results, be careful. Don’t ever go all in, based on any one indicator. During market crashes, DCF can be thrown out the window because underlying assumptions of future sales and earnings, can change radically if the broad economy is sinking.

Here are a few ETFs year-to-date:

SLV silver 72.0%
GLD gold 54.6%
EEM emerging mk 27.0%

QQQ Nasdaq 100 15.4%
SPY SP500 12.4%

IWM Russell2000 6.6%
TLT US20 yr 2.5%

My trading account +12.0%, so slightly behind SPY. Considering I have kept a large cash reserve all year, that’s an okay result.

Short term it will be difficult for the broad market and many leading stocks to make all time highs. META and TSLA have given up all their 2025 gains. AAPL, WMT are holding up well. 

There is chatter about a K-shaped economy. The top 10 or 20 percent are doing well, and still doing discretionary spending. The lowest 25 percent is struggling, if not sinking.

Personally, I have a lot to be grateful for. As investors we all have a lot to be thankful for. About 40% of working Americans have near zero savings, many have significant debt. So if you have any money to invest, you are likely in the upper half.  

Chicken Little, grade C

Markets edge higher. Subject line refers to a 60 minutes segment about a new book about the crash of 1929. The author says that we may see another crash soon. As a long time market participant, the more voices warning about a crash, the less likely it is. Let me add that corrections and even crashes are near inevitable. Timing the crash is a game best left to pundits and authors. It is a low percentage game.

As for the markets, here are some ETFs year to date:

SLV silver 78.5%
GLD gold 60.6%
EEM emerging mkt 29.6%

QQQ Nasdaq 100 18.1%
SPY SP500 13.2%
IWM Russell 2000 10.2%

TLT US20 yr 4.4%

My trading account is +12.0% so I am lagging SPY and QQQ. I am participating on the long side, but have some hedges plus a healthy position in BIL (T-bill etf). Also notable is the run away freight train in precious metals. I have a tiny core position in physical plus a few shares of a gold etf. This is more insurance than investment.

More on the odds of a crash. Chicken Little is always with us. Sometimes the voices are loud and they get TV time and write books. Sometimes they are more in the background, but there are always people calling for a crash. 

Maybe once every 20 years, the market experiences a sharp move down. Young participants have never experienced a secular bear market, that has lower lows and lower highs for a decade or more. The secular bear is also near inevitable, but very difficult to time.

Some very smart educated people have been beating the bear market drum for years. The so-called Buffett indicator, total US Gross Domestic Product (GDP) vs. market cap of the entire US stock market. One flaw in this indicator is that many companies are global. Tech titans, AAPL, AMZN, META, MSFT, NVDA all have global reach. BRKB has held a huge cash position for several years.

On the bull side is the near unlimited growth that robotics and AI may provide. It may be as big an economic change as the railroad boom, or the widespread adoption of electricity. These big inventions led to entire new industries. Of course there is a dark side, there will be losers.

I always say predictions are for entertainment. That said, if I had to predict market top, I’d say it is 2027, and about 50% higher than today. By writing this down, it may remind me to get much more defensive if that scenario unfolds. The nature of markets is that tops form with a near maximum number of buyers, near minimum of sellers. In a theoretical system, market timing is almost a sure loser.

So what to do? Do what I’ve been doing mostly. Overweight mega cap tech with a healthy cash reserve. Perhaps take a few more shots on the speculative long side, looking for a 50% move higher from current levels.

Chasing the bull, grade C

The bull market steams ahead. I am now trailing both SPY and QQQ for 2025. Grade C. September is one of the weakest months of the year, so I hedged. This year, any out right bears got their heads handed to them, as stocks, and precious metals roared ahead.

Here are some ETFs year to date:

SLV silver 48.2%
GLD gold 40.1%
EEM emerging mkt 26.8%

QQQ Nasdaq 100 17.2%
SPY SP500 13.2%
IWM Russell 2000 10.0%

TLT US20 yr 1.9%

My trading account +11.9%. Now lagging both SPY and QQQ. This tends to be the expected result when holding large cash reserves.

Cash isn’t quite trash, but those that were cautious were left behind. What next? It is difficult to believe that the record bull run will continue. The old cliches, don’t fight the Fed, don’t fight the tape ring true. Certainly we are extended. However, AAII sentiment is neutral. Only in the last week or so have their members bowed to the bulls, but still slightly more lean bearish for the next six months.

So no major changes to my market view. Keep core positions along with a healthy cash reserve. Add on significant dips. Stay overweight tech for the invested money. One minor addition is a tiny position in ORCL.

During big up months, it would be nice to be nimble and ride the wave. With my long trading history, that rarely happens. Half a loaf it is. I am glad I am not a bear.

The Rising Tide, grade C+

The rising tide lifts all boats is a stock market saying. The bull keeps running. I remain cautiously bullish, now slightly behind SPY for calendar 2025.

Here are some ETFs year to date:

GLD gold 27.4%
SLV silver 24.2%
EEM emerging mkt 19.4%

QQQ Nasdaq 100 12.9%
SPY SP500 9.8%
IWM Russell 2000 2.8%

TLT US20 yr -1.1%

My trading account +9.7%. QQQ has leap frogged ahead. Precious metals and emerging markets are even further ahead. A market correction can happen at any time. Reddit sentiment has become more bullish, especially on NVDA. Nvidia reports Wed August 27th. I remain cautiously bullish. Some small fish are going big into calls. NVDA is already over $4 trillion in market cap. That’s more than all the public companies in Germany. Is Germany and rest of Europe doomed to be irrelevant going forward? I doubt that, but stranger things have happened.

As a hedge against a correction, I do a QQQ backratio put spread Dec 550/520. Buying one put at the 550 strike, selling two at 520. Max profit is a 11% correction at September expiration (577 current). If the market crashes, the backratio starts losing below 490. I can trade around the hedge.

Some other stock market cliches are don’t fight the Fed, don’t fight the tape, don’t chase. All of these apply to the current market. If there is a market correction, Fed easing becomes much more likely. The trend has been mostly up. Chasing the leaders can hazardous. Those buying out ot the money, NVDA calls with that stock at all time highs, and already number one in market cap, tends to be a low percentage game.

My biggest non-index holdings continue to be NVDA, BRKB, AMZN. I have tiny positions in some of the other mega cap tech names: AAPL, GOOG, META, TSLA. If anything I am more cautious than I have been, but still lean bullish. If and when the market corrects, buying the dip remains the plan.

More Bull, grade B-

The bull market roars ahead. Any pauses are minor as most indexes are at all time record highs. I haven’t done anything particularly clever this year, but am riding the tide higher.

Here are some ETFs year to date:

GLD gold 27.4%
SLV silver 24.2%
EEM emerging mkt 17.4%

QQQ Nasdaq 100 9.8%
SPY SP500 7.1%

IWM Russell 2000 0.6%
TLT US20 yr -2.4%

My account +7.5%. I’ll take it. I have an overweight position in NVDA. Without that I would be lagging behind. As is, I sold some calls and had to cover some for a loss as Nvidia kept moving higher. After a year of not doing much, the market cap leader is again leaving skeptics behind.

Some are making the analogy to the 2000 tech bubble. However, we might still be a year or more from the bubble top. Chatter about a bubble without chart action to back it up, is a remedy against the bubble. Because of the bear market in QQQ earlier this year (-20% from top), in my mind, that gave the market an innoculation of sorts from a crash at least for a year.

I do wish I were smarter, more clever, more nimble. This is mostly hindsight. I am riding the market higher with modest profits for the year. One reward is to buy a mid-price guitar, an Ibanez AAM300CE.

Here is a short video with me playing My Favorite Things:

https://www.youtube.com/shorts/JftpqQ4RHMY 

Is the bull back? Early report

I’m traveling the next two weeks, so am posting an early report. Grade incomplete. May is banner month for the bulls. NVDA went from my biggest losing ticker for 2025 to the biggest winner. MSFT continues to be on the loser list because some calls I sold had to covered for a big loss on a gap up. NVDA's recent strength caused a smaller loss, covering sold calls.

One commentator from IBD on YouTube is super bullish. Take it with a grain of salt, of course, but the guy has 40 years in the market and sees a parallel to the 1998 Internet bull boom. That ended badly in 2000, but there were two years when fortunes were made.

The IBD methodology is CANSLIM, a momentum centered strategy that tries to ride big up moves. This home run mentality is something I am weak at.

I’ve have a position in NVDA shares. I started buying around 30, and it is now 140+. That’s one of the very few home runs I’ve had in non-index shares. With the benefit of hindsight, someone trading the ups and downs could have made much more than 4x, but for me, that’s a big hit.

Here is an ETF recap:

GLD gold 26.0%
SLV silver 24.2%

EEM emerging mkt 12.2%
SPY SP500 2.3%
QQQ Nasdaq 100 3.7%

TLT US20 yr -2.3%
IWM Russell 2000 -4.1%

My trading account +2.7% for calendar 2025. Not great, but I’ll take it. The sobering comparison is to T-bills which might be +1.7% with no work, no risk, no draw downs. I might a market chicken, but I am not in turtle mode.

I feel like I haven’t done much right in 2025. An analogy might a be a baseball pitcher that doesn’t have their best stuff that day, but does enough.

For those traveling, have a aafe and fun trip. Cheers.

Another V-shaped recovery, Grade C-

Stock market moves almost straight after a brief bear market. I feel like my trading is below average, because I am now slightly behind SPY and QQQ for 2025. Grade C-

I did some put debit spreads to hedge a bit. Both hedges expired worthless, costing me about 0.9% of the portfolio. MSFT rocketed higher on earnings and I covered some sold calls for a huge percentage loss. Those factors contribute to me now trailing the indexes.

It demonstrates why and how hedging is difficult. I paid 0.9% for a minor hedge for about two months, which basically turned into drag. Of course if I knew we would recover from the bear lows so quickly, I wouldn’t need to hedge. I can find some comfort in staying mostly long. Having the hedge gave me confidence to keep my other longs.

Here are a few ETFs year-to-date:

GLD gold 21.5%
SLV silver 11.3%
EEM emerging mkt 10.6%

QQQ Nasdaq 100 2.0%
SPY SP500 1.4%

TLT US20 yr -1.2%
IWM Russell 2000 -5.0%

My trading account up 1.1%, so I am slightly behind. I am going to be traveling next month, so trading may be limited. The market continues to be treacherous. United Healthcare was a super blue chip a couple months ago. UNH lost over half its value in a few months. That’s why diversification and risk management is vital for those with a decent account size.

Is it all puppies and rainbows now? Seems unlikely, but the 2025 lows are likely good support if we see another leg down. Still a lot of public chatter about risk in the market, and it is risky. This is not a low risk time to be all-in long. So my default is back to being net long, delta hedging.

Simplest example is to own 5 shares SPY, sell a 3 delta call. The tiny premium doesn’t cushion much downside, and if the market rips higher, some upside might be lost.