August TR Ultra Growth Newsletter Part I: The Time for Defense IS HERE-- Thank the Stock Market Gods!

Hey Reader,
 

Last month I shared the following advice: "The Short-Term Game Plan--PATIENCE--Add New Positions in the HIGHLY Predictable August + September Profit Taking Pull Backs!" and "Look--we are sitting on historic profits--it is not a time to get greedy. It's time to shave some profits off your biggest winners to build some cash to take advantage of the VERY predictable market "consolidation" aka profit taking. 

So here we are--at the beginning, I HOPE, of a much-needed 10%-20% or more healthy pullback in the record-setting snapback from the April 9 Tariff War Market Meltdown.

Key Point: Market breadth remains one of the most dependable ways to assess the strength of a trend. When the S&P 500 makes new highs without confirmation from key leadership—such as semiconductors or the Mag 7—it typically signals a weakening advance. 

As I posted a while back in July Update: “While the market continues to push higher, it has been doing so without the support of key stocks and sectors. Unless that divergence resolves to the upside, it tends to be a warning.” 

That warning is back. The S&P 500 has notched new highs, yet several of the most important confirming indices are missing in action. Of the eight leading markets we monitor for confirmation, seven are currently diverging from the index: 

  • Equal-Weighted S&P 500 

  • Small Caps 

  • Semiconductors 

  • High Beta Growth 

  • Financial Conditions Index 

  • Transportation Stocks 

  • CBOE Volatility Index (VIX) 

  • Advance-Decline Line 

Action to Take: Short the overbought QQQ with the $SQQQ fund (and get 12% yield!) or buy slightly out of the money $SQQQ call options/sell Put options.  

Why am I hoping for a 10%+ pullback in secular growth stocks?  

Because you and I BUILD our stock market wealth 1) by identifying the secular growth sectors and companies undergoing transformational change. And while the 4th Industrial Revolution, including Mass Market Artificial Intelligence agents, apps, robots, self-driving vehicles, drone warfare, the emergence of quantum computing, and EVTOLs, etc., is going to be a gigantic wealth builder for us...
 
...The US growth stock market, up 40% from the April Tariff meltdown, it has come back too far and too fast, and that kind of meltup is not sustainable.

Why is this AI market melt-up not sustainable? It's simply because 

A) Market allocation data says retail investors are ALL IN--the data on their 401k's, IRA's, Brokerage Accounts shows they are ALL STUFFED with ALL THE SAME stocks, ETFs, mutual funds and the 60% stocks/40% bond allocation is now 82% stocks----

B) WHILE at the same time, institutional investors have to follow and apply strict asset allocation and portfolio concentration rules for their non-taxable investors, and they are taking massive profits RIGHT NOW as they are required to in institutional asset management land.

If they don't actively rebalance this melt-up, institutional investors will take their money away.; 

How long will this much-needed "stock market digestion mode" last?

Well, healthy pullbacks in a bull market pull back to 50-day moving averages -- but if the Fed on Friday does not sound in a hurry to cut Fed Funds rates by 50 basis points, a pull back off the QQQ to 200-day at 520 would be a healthy cleansing of the tech stock/AI stock FROTH.

Here is the latest chart of the QQQ--the de facto stock market these days:  Brown line is 200-day--Orange Line is 50-day. 

Key Point: There is still more than $11 TRILLION in Money Market Funds in the United States--and both institutional and retail investors have been trustworthy "Dip" buyers during this AI investment cycle. And 30% of money inflows into tax-efficient ETFs are in actively managed ETFs.

Thus, we should expect the dip-buying mantra to continue.

Second Key Point: The stock market melt-up has also been powered by over $ 1 trillion in stock buy-backs from publicly traded companies--that is a record according to Biryni Associates, who follow the data. Also, the automated stock price momentum factor-based funds and hedge funds became the "marginal buyer" of the fastest growing stocks (marginal buyer means they are the price and value insensitive buyer), which creates a positive price feed-back-loop--see the Mag 7 chart. 

The more Wall Street trading is momentum factor automated, and the more that trading is based on liquidity and trend following, the bigger the big company valuations get…and the more everything else gets left behind. I worry that the AI Tech/Infrastructure/Power mini-bubble becomes unstable (this is an argument that capital markets become both less efficient and more volatile, as the "4th Industrial Revolution" mania sets in).

And wow, look how the Mag 7 has returned nearly 2900% since May 2015, and the Bloomberg 500 EX-Mag 7 has returned just 129%! LOL, those dogmatic "value investment managers who did not find value in the Mag7 secular growth stocks are mostly retired now (that is YOU, Bill Smead!! )

What Do I Think The Fed Will Do Friday --Capitulate to Mr. Trump??

I will leave the speculation to my favorite Fed Expert, Claudia Sahm:

With sharply slower job growth and still-elevated inflation, the Fed faces a challenge in which its dual mandate of maximum employment and price stability will likely come into tension. Powell’s speech will begin to bring the framework and interpretation of the most recent data together, a process that the Committee as a whole will oversee to completion.

Of interest will be how Powell characterizes the labor market. It’s his first time speaking after the employment report for July, including its extensive downward revisions to payrolls in May and June.

Expect Powell to discuss the role of supply-side factors, such as reduced immigration and an aging workforce, while acknowledging the risks of weakening demand for labor. With inflation, Powell’s description of the underlying pace of inflation (excluding tariffs) will be as crucial as his comments on tariffs. Non-housing services inflation picked up pace in July—a worrisome sign, given that it remains elevated and cannot be easily explained by tariffs.

The outlook and changes to the framework from Powell may be perceived as hawkish, with the Fed more concerned about inflation than employment, especially at a time when financial markets expect imminent rate cuts. More accurately, this is what the Fed looks like when navigating risks to both sides of its mandate.

TR Ultra Growth Date Center Tech + Power Stack - Gains, Buy Under Pricing 

TR Ultra Growth Data Center Tech + Power Stack - Gains, Buy Under Pricing
Company Ticker Yield BuyPrice Investment $ Gain % Gain Buy Under $
5.15.23 07.22.25
NvidiaNVDASOLD$29$168$139476%10%+ Pullback
SuperMicroSMCISOLD$136.6$1,140$1,003734%10%+ Pullback
Applied MicroAMD$95.0$154$5913%10%+ Pullback
Taiwan SemiTSM$83.5$146$6354%10%+ Pullback
BroadcomAVGO1.6%$62.9$249$186296%10%+ Pullback
Arista NetworksANET$137.0$386$249182%10%+ Pullback
Pure StoragePSTGSOLD$33.2$54$2163%
Uranium X ETFURA$21.9$32$1045%10%+ Pullback
Centrus EnergyLEU6.0%$31.9$216$184577%10%+ Pullback
TQQQTQQQ$28.7$60$3188%10%+ Pullback
SOXLSOXL$17.4$27$1057%10%+ Pullback
Verses AIVRSSFHOLD-65%HOLD
VertivVRT$25.3$125$100394%10%+ Pullback
3X GDX MinersGDXUHOLD$41.93$81.02$3993%ANY Pullback!

Our $GDXU 3x Gold Miners is up nearly 100% since we added it in early April. Goldman Sachs reports that trading volume from retail traders/ETFs from the April low was $50 billion in new money in the market, which was a record 40% of all new money in stocks.

I have Alexandria Wilson-Elizondo, Goldman Sachs' co-CIO of multi-asset solutions, on my Money Mavericks streaming/VOD/Podcast next week-she was spot on for her call that "the market" needs a breather--here was her call on CNBC 

Sectors We Are Opportunistically Adding On a Normal Late Summer Pull Back!

Expanding beyond the TR AI Data Center Tech Stack is PRUDENT diversification--and while there are big opportunities with the AI Data Center Stack, it is mostly fully priced.

Non AI Stack Examples? Gold Miners (in addition to GDXU!) — $AEM, $HL, $KGC + Newmont Mining $NEM — as you can sell put options on pullbacks to lower your cost basis and generate income. The thesis is simple-- as long as the US dollar continues to be sold by global central banks, aka debased, as the US national debt skyrockets by $trillions (and be prepared to be a little shocked at how much more your non-US vacation is when your dollar-denominated credit card bill arrives!)--gold stays a safe harbor.  

2) Transformational Crypto Digital Asset CLARITY Act-- passed the House and goes to the Senate with a positive vote almost certain after the Summer recess. That opens the door for $ETHU, $BULL, MARO/MARA, WULF, BITF, $BITX, SOLZ, $SOLT, and the pubco Ethereum "Stakers" like $BMNR, $SBET, etc. --BUT LET THEM CORRECT BACK to 50-day support as well. 

3) US-Based Tariff Wars Winners--like recycled clothing from $REAL and ThredUp $TDUP and any secular growth industry/company that produces its goods 100% in the United States, tariff-free!

4) The Top 25% of US Households by Annual Income--which account for 80% of discretionary spending in the US economy/GDP and financial assets under management -- $GS, $JPM, $EXPI, $SG, $BHR, $LIND, $VIK, $YETI, $LCID, $PK, $SCHW

5) The BOTTOM 50% of US Households by Annual Income--who are using BNPL credit like $AFRM $UPST $AMZN and shop value retail $SCVL, $WMT, $MCD 

Our New Sectors and Stock Picks---WAIT FOR 20%+ Pull Backs!!

The Trump Administration is also massively supporting ALL these revolutionary technologies, which massively feed these self-reinforcing Small Cap Stock Market Attention Feedback Loops:

  1. Crypto & Crypto Infrastructure (see above)

  2. Quantum Computing--Rigetti RGTI QUBT IBM

  3. Electric Helicopters/EVTOLs-- JOBY/Archer

  4. Small Nuclear Reactors: SMR/OKLO/NNE/ASPI/ and of course LEU up 636% since June 2023!

  5. AI-Based Digital + Robotic Labor Replacement: Physical Labor-based Robotics & AI Customer Service (picks to come ) 

  6. AI Cyber Security/EDGE computing Platforms--Cloudflare (NET), CrowdStrike CRWD, ARM, QCOM

  7. Digital+ Drone Warfare & Space: Palantir PLTR  AVAV KTOS AVAV LUNR RCAT LUNR ASTS AXON
     

AND PS: We are sending this update to current and former subscribers -- IF YOU ARE NOT CURRENTLY SUBSCRIBED to TR Ultra Growth newsletter, you CAN RENEW by clicking here and for a little as $97 get ALL our upcoming buy recommendations on the "Next Generation" sectors and leaders whose valuations will get boosted by the digital attention economy and 20-35-year-olds who now trade stocks and crypto instead of playing golf (or getting married!)---here is your link to re-subscribe


https://www.transformityresearch.com/tr-ultra-growth 
 

 Final Note) Here is our master list of the primary AI Data Center Tech Stack plays and Infrastructure Components 

Here is the subscription link for TR Ultra Growth renewals --1 and 2-year subscriptions--gett'r done 

The same goes for All-Access memberships—we will close the existing All-Access Discord Trading Room very soon and send new invitations to those who have renewed their one-year or two-year All-Access Pro subscription (which now includes TR Ultra Growth and Ultra Monthly Income subscriptions!).

PS: For our DAILY Buy/Sell/Hedge advisory service + our TR Ultra Monthly Income service (Now Paying 6% a MONTH in monthly dividends) Here is the All-Access PRO subscription renewal link One Year

Toby

Tobin Smith--Founder/CIO Transformity Research/Wealth Management/Transformity Capital Markets

Founder of ChangeWave Research (now part of S&P Global Research ) /2X NY Times Best Selling Author ChangeWave Investing & ChangeWave Investing 2.0 published by Random House/Editor Transformity Ultra Growth/Ultra Monthly Income/All Access Trading Room/Managing Member TransMed One  TSIG LLC/ 14-Year Contributor on Fox News' Bulls & Bears /Host @ Fox Business

Tobin Smith