The AI Memory Supercycle Hits Pause
Memorandum of Mis-understanding
We knew this day was coming given the mercurial nature of this POTUS, and the timing of an oil spike on Middle East War escalation AFTER the WTIC pre-Iran oil spike gap fill of $67.90 filled. ;-)
So my call was long crude oil into $75.75 with overshoot to $85 - but I doubt it gets above that level of solid resistance without a really big reason.
News Tuesday on reasons for the move: (h/t Zerohedge)
US strikes on Iran announced, as ‘heavy costs’ for earlier targeting of multiple commercial vessels
Oil rises as Treasury revokes June 21 Iran oil waiver
Hormuz Threat Level Raised To “Severe”
Three maritime incidents reported on Hormuz in last 24 hours
Another unidentified vessel hit by a Drone
IRGC forces hit a Saudi Tanker
IRGC forces hit a Qatari LNG tanker
And with that, markets opened weak, but zooming out, the market weakness is just a topping pattern since early May! That’s right: two months of chopping sideways - and likely more to go into July expiry next Friday the 17th.
“We are looking at a range between 7350 and 7575 for the next 2 weeks” says Jason in his LaDucTrading member Slack channel volland-dealer-positioning.
The question on everyone’s mind: what happens after THAT?!!
Well, earnings of course!
And with that, from DataTrek ahead of Q3 earnings - which kick off next week with banks Wednesday:
Earnings estimates have increased by +10-11 percent for 2026 and 2027, and the S&P 500 is up +10.1 pct year to date.
Industrials are the only group trading meaningfully (+24 percent) above their 5-year average valuation and are now more highly valued than Technology (26.0x versus 22.9x) and the S&P 500 (20.4x).
Banks have also had a terrific run into earnings
Keep an eye out: XLF, KIE, XLI, JETS & soon XBI are the ‘rotation darlings’ that could be ripe for profit-taking/digestion for earnings season… while the bottleneck vs hyperscaler traders exchange hot takes on why the “AI Memory Supercycle” is long from done.
Have a look at my rotation thoughts posted June 25th:
Since then, the semi trade has gone into firm profit-taking and distribution.
Despite a potential for a relief bounce, there are reasons for wondering...
Is The AI Trade Done?
Scarcity vs Abundance is the entirety of the AI mania in all “bottleneck” trades. I wrote about this coming rotation OUT of the semi, memory, photonic bottleneck trades back into hyperscalers, software, China plays above with a follow up June 29th:
Fast forward and dollar, yields and now oil are higher, causing headwinds to equity bulls.
But my point has been: As long as AI bulls can make the case that compute remains scarce, then the chase will continue - WHETHER OR NOT TRUE.
But if the argument weakens for aggressive Capex, semi valuations, and/or competition/alternative supply ... then the money would flow out of semis/memory (the money takers) and back into hyperscalers (paying for and monetizing AI) and oversold software (including China plays).
Since then, we had some additional support for my rotation thesis.
