🗞 Crowded Few

WHILE YOU POUR THE JOE… ☕️
Buying Time

Super Micro Computer stock apparently met its deadline for filing its financials and avoided being delisted by the NASDAQ exchange, which is great news for the entire market. 🤷‍♂️ 

Why?

Nvidia is probably one of the most important earnings announcements in the stock market today, and it will be made tonight after market hours.

Based on how well Super Micro Computer did lat night, it would seem the fate for Nvida is nearly set for making a new potential high. 📈 

And that means a new rally in the S&P 500 before any other exogenous catalysts come into play, showing the actual weight of our broader bearish thesis.

Speaking of catalysts, let’s get on with today’s email 📧…

BALANCING FORCES
What Happens If…

According to Bank of America and other banks that have access to prime broker data, the most crowded trade right now is long the Magnificent 7 stocks. 💵 

This is where the risk in the market comes into play, since nothing ever good has come from a trade being too crowded, I mean think about it:

• A trade becomes recognized in the overall market, calling for more attention and capital at the same time.

• More and more people plunge into this view, bringing some names in the theme to become overextended in both valuation and technical terms.

• Then, you know what hits the fan and everyone has to run out the same exit at once, causing a stampede of sellers with no bids in sight.

We were genuinely worried that this would cause a major decline and deleverage if either $SMCI or $NVDA missed on their earnings announcement and caused a systematic dumping of these Mag 7 names across the board. 📉 

But, as it turns out, $SMCI has saved the day so far, though there are still a few things to worry about.

When you look at the S&P 500 futures chart, without the volume/market profile to reduce noise for you guys, there’s a few things I find interesting.

That shaded area has acted as a relatively strong reaction zone for aggressive buyers coming in, and when markets bounce back this hard no matter what the news are, or how sharp the selloff have been, it usually tells me one thing:

Prices are screaming to go higher still. 📈 

But, there’s one issue, the ceiling has been tested around the $6160-$6165 read plenty of times.

For two months to be exact, confirming there might be a lack of continuation buyers coming in the scene. 🫰 

Among the many indicators we’ve looked over, which confirm our bearish bias on the S&P 500 if it’s able to get rid of those aggressive buyers at the wicks...

The Commitment of traders report stands out, and there are two things I want you to focus on here:

1. Red Line: Represents the commercials and dealers (think of big banks and prime brokers). These guys are comfortable being as short the S&P 500 futures as they’ve been since 2007.

2. Green Line: Institutionals, these guys are the hedge funds and money managers, of which there are very few left today, if anything we’ve only got momentum managers left in the game. 👀 

As you can see, the rotation is starting. Momentum has died off in equities as the S&P 500 struggles to break the tops made months ago.

Now these managers will have no justification to charge their fees, and that might bring on a few redemptions from investors, leading them to liquidate positions.

The result? Downside on S&P, plus other indicators we’ll cover in following posts. ✅ 

TRADE OF THE WEEK
Right Shift to Caffeine

So if you follow us on Twitter, then you’ll know we did some on-the-ground research with Dutch Bros Coffee, and what we found was amazing. ☕️ 

Here are a few things we liked about it, especially over its main competitor Starbucks Coffee:

• Staff seemed more knowledgeable than Starbucks, and were much more patient and accommodating (I purposely placed a complex order and asked a lot of questions)

• On a ratios basis compared to comps in the restaurant industry, Dutch Bros stands out just the way we like it, getting us to start looking for a potential long position.

• 26.5% gross margins to also stand out above the industry average, and a much more scalable business model.

These are the comps in the restaurant industry, and I want you to keep a few things in mind for Dutch Bros, especially compared to Starbucks:

• The EPS forecasts for 2026 are on the leading end of the spectrum, pushing for 29.3% growth above the average for 14.9%.

• Forward P/E ratios are outstanding at 97.5x, justifying the premium through its EPS growth.

• P/B premiums of 12.8x are also a justification here for us.

However, it’s not all sunshine and rainbows. We appreciate that Starbucks has the “Come and sit” model to attract students and work meetings, something Dutch Bros doesn’t have. 👎️ 

Now that being said, we do have a lot more homework to do, but here are some areas we’re willing to start looking into:

Based on both the market/volume profile above, as well as the bar chart, we’re happly to strat looking at this stock at the $50 mark right now, and then a secondary entry point for more conviction at around $43.3 per share here.

Considering that the volume cutoff stands at the $86 level for this year so far, that would also be a potential exit point.

That’s a 72% upside by the way, assuming we enter at $50 per share. 🔥 

As always, some on Wall Street seem to be on track with this view, so set your alerts, you might be making some money soon.

GO AND MAKE IT HAPPEN
VPOCs And Profiles?

If that was the question that popped in your head as you read the breakdown above, then you might want to check out today’s book recommendation 📖.

It’s the one that many market profile and order flow subscribers lean on for their analysis and answers, and it’s one I’ve personally read a few times as well.

To your success,

G. 🥃