The AI Bull Is Alive and Well

Last Thursday’s tech sell-off dropped the Nasdaq 5.5%, its worst day in 19 months. The market lost roughly $2.3T, the single biggest loss in history.

If you’ve been reading this newsletter, watching my Schwab segments, and showing up for the SundaySetup, none of this caught you out. The good news is, it won’t stop the raging AI bull.

This Pattern Taps Into One of the Most Powerful Forces In the Market

The Big Picture

Back in mid-October, I said that if there’s a blue wave, there would be an assault of regulation on these companies.

But this isn’t to say “I told you so,” or claim that I called it…

Instead, I want to focus on the thought process that gave us the equation, because that’s how to improve over time.

They Told You Their Playbook

I’ve been preaching this for weeks. Even though I don’t like to bring politics into trading, I won’t shy away from stating facts.

• One side said it wants to let AI work for America. It wants to let AI do what it wants.
• The other side wants to regulate AI and stop data centers from getting built.

My thought process when I heard that was…

This election is very AI-sensitive, and the AI trade is very sensitive to the political playbook.

Let’s take it a step further…

Consider the people who manage billions. Running up to the election, they didn’t know who was gonna win. They were up on the AI trade. So, they sold their winners first.

They got prepared. In some cases, weeks ahead of time.

Then we saw the little post-election bounce on Wednesday (Nov. 4). That was a “sigh of relief.” Not because of who won, but because the uncertainty was over.

But it didn’t take long for those newly elected politicians doing the rounds on news shows to restate their playbook.

A lot of people freaked out, okay?

But not us, my friend, because we were ready. We don’t predict, we react.

But even though we wait, there’s still a thought process behind it, okay?

If this happens, what are the possible outcomes?

Aim to Improve 1% Every Day

Now, you might be wondering, “Tim, what does that have to do with the market sell-off? What does it have to do with the election?”

Trading for a living means you’re going to have to learn how different events, like elections, play out in the markets. You’re going to trade through election cycles, right?

And part of that is understanding what the playbook means. That’s exactly what the hedge fund managers do. It’s what institutional investors do. And it’s what experienced retail traders do.

So, you’re going to have to work at it, every day. That includes understanding how this will play out in the long run.

The AI Bull Will Come Back

Now, the market bounced some on Friday. But that’s not what I’m talking about. We could see the market go lower. Or chop around for the rest of this year.

But AI isn’t over. The AI build-out is already under way. All these stocks will come back strong. As the strongest start trending again, you re-enter the trade.

My Take

I think the election has kind of been used as an excuse for a lot of selling. But as we start seeing earnings that show it was an overreaction, we can use the chart to guide us. We’ll know when to re-enter a lot of these great names.

Now, if you’re dip buying any of these AI and tech stocks right now, I think you’re flirting with a falling knife. Let the chart start to firm up. But make no mistake, the bull will rage again.

Watchlist

As a short-term trader, one thing I always look for is strong stocks that aren’t doing what everything else is doing.

Applovin Corporation (NASDAQ: APP) was an earnings winner on Wednesday (Nov. 4). On Thursday, while the market was selling off, APP held strong.

What I like about APP is that it held the earnings gap up, telling me that buyers are in control.

Look for breaks above $396, which is the Oracle major resistance level. Remember, $400 has a strong psychological pull. So, any break above that number could lead to another leg up.

On My Radar

• Elon did the rug pull on Cybertruck but plans to ramp Cybercab
• Friday’s huge jobs number helped the market bounce
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