Why the Next Big Short Will Likely Go Bust VIEW IN BROWSER By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - The king of the bears just made another big bet
- Why TradeSmith’s data says you shouldn’t chase it
- Always remember to buy in November
- Don’t trade “the market” – use this 10-minute-per-month strategy instead
We’re back in the saddle this week… After some much needed screen-free time with my wife and baby this past week, roaming the Appalachian Mountains and a few breweries in between, it’s time to crack our knuckles and see what’s been happening in markets. And since I know you’re about to ask (some of you already have) – yes, we’ll check in on our Nasdaq 100 monthly rotation strategy today. I’ll show you why we’re about to give it out for free to our most dedicated TradeSmith subscribers. And how, a few weeks from now, you’ll get the chance to access it yourself. First up, though, a sign that this raging bull market might soon wind up on its backside. Michael Burry just made a new “Big Short”… If we had to crown a king of the bears, Michael Burry would be the first guy to call. He’s the reclusive hedge fund manager who bet against the market ahead of the 2008 Great Financial Crisis. This earned him $100 million personally. And it made about $700 million for investors of his hedge fund, Scion Capital Management. It was so famous, it spawned a book and a smash-hit film – The Big Short. According to the most recent filing from the same fund, Burry is now making another big short. This time with bearish put option trades on AI darlings Nvidia (NVDA) and Palantir Technologies (PLTR) worth $187 million and $912 million. Burry already cashed out most of its stock portfolio in the first quarter of this year, missing out on at least a 20% rise in the S&P 500. Now, save for a few stocks, this new short position represents about 80% of Scion’s holdings. But TradeSmith’s data says this isn’t a trade to follow… I pulled up three of our indicators for both stocks in Burry’s crosshairs. Each shows us how they’re set to trade in the short and long term. And each shows us that this new Big Short could take some heat. They are: - Our Short-Term Health Indicator: It tells you whether a stock is trading with good recent momentum and has historically led to continued gains
- Predictive Alpha’s Prime Forecast: Our AI-based forecasting algorithm shows you the likely place a stock could trade and how often it’s hit those projections in the past
- Jason Bodner’s Quantum Score: This rating system factors in a stock’s fundamental growth rates and the presence of Big Money buying pressure to grade stocks from 0 to 100
First up is NVDA. And we’ll start with its Short-Term Health status. From that perspective, NVDA is well in the Green Zone – has been for more than five months: 
In a backtest we conducted across the S&P 500 stocks, when a stock was in this bullish zone, it returned 13.7% on average. When it slipped into the Short-Term Health Red Zone, indicating bearish momentum, the average return was negative -4.3% The data tells us we shouldn’t be bearish on NVDA as long as it’s in the Green Zone. Predictive Alpha Prime is also bullish on NVDA. It’s forecasting NVDA will rise 4.8% (to $208.23) by Nov. 19. In our testing, this current forecast has been accurate more than 80% of the time: 
Finally, for a longer view on the stock, there’s Jason Bodner’s Quantum Score. Right now, Jason’s Quantum Score is at a 91.2 for NVDA. You don’t get a reading like that without exceptionally strong revenue, earnings, and profit margin growth. Most important, the stock also needs huge buying volumes from the biggest investors on Wall Street: 
And Jason typically recommends a hold of time of about nine months for stocks that score well on his Quantum Score. So we’re seeing bullish short-term and long-term sentiment for the market’s favorite AI play. Now let’s look at the other stock Burry is shorting, Palantir… Palantir requires special attention. Burry’s shorting PLTR at more than four times the value of his NVDA short. And let’s start again with its Short-Term Health. Like NVDA, PLTR has also been in the Short-Term Health Green Zone for quite a while – more than six months: 
Palantir’s Predictive Alpha Prime forecast is also bullish. In fact, the AI is even more bullish these next few weeks for PLTR than it is for NVDA. Prime forecasts PLTR stock to rise 8.5% (to $207.03) by Dec. 2. And it’s been right almost 69% of the time in the past: 
And finally, PLTR gets an equally high score from Jason Bodner’s Quantum Edge system: 
If these scores were grades in school, NVDA and PLTR would be on the dean’s list – not in detention. From where we stand, these are not the stocks to short in a raging bull market. Also, Seasonality is also pointing to a strong November… Seasonality is the study of how markets trade at certain times throughout the year. These seasonal patterns can affect everything from stocks, to currencies, to even commodities like oil or gold. The market action of the past few days has been appropriately spooky. The S&P 500 saw a short-term peak on Oct. 29, two days before Halloween. And it’s down about 2% since then. But as you can see from the chart below, we’re in one of the most seasonally bullish periods of the whole year. On average, the SPDR S&P 500 ETF (SPY) has returned nearly 3.5% in November and has been positive in 13 of the past 15 years: 
The only two years it’s been negative were 2012 and 2021. That should keep you wary of any bearish headlines. The data shows that stocks tend to rise through the fall season. So we should keep our biases to the upside. Finally, let’s check in on our monthly rotation model for the Nasdaq 100… A few months back, I introduced you to a monthly rotation strategy on the tech-filled Nasdaq 100 index based on a new algorithm we’ve developed. In short, you buy and hold five Nasdaq 100 stocks at the start of the month. The next month, you change them as the algorithm says… and rebalance them for equal position sizes. This simple approach takes at most just 10 minutes at the top of each month. And, in return, it outperformed the Nasdaq 100 benchmark by nearly five to one from 2018 through to today. That’s enough to turn a starting stake of $10,000 into more than $140,000. And it shows that buying and holding on “the market” isn’t nearly as effective as buying the best stocks. Especially when you’re guided by an advanced, purpose-built, machine-learning algorithm. This has proven to be a popular idea with our readers. So much so that our customer service team pinged me while I was out last week with a reminder to share this month’s new trades. I should emphasize that this is a long-term strategy. There are some good months and some bad. But it’s important to stick through all of them to have the best chance at seeing the results we got in our backtest. Here is how the model performed in October. It outperformed the Nasdaq 100. But was dragged down by losses in Bitcoin holding company Strategy (MSTR): 
Despite that, the machine-learning algorithm that powers this strategy continues to recommend holding MSTR. The only change this month is to sell Broadcom (AVGO) and add Advanced Micro Devices (AMD): 
As a reminder, if you’re following this strategy, you’ll want to sell all the previous month’s positions, then reallocate the resulting cash equally among the four new trades. Additionally, I mentioned last time that this strategy will soon be an exclusive benefit to our Platinum members, who pay to receive every piece of software and research we publish. As such, this will be one of our last updates for this strategy here in TradeSmith Daily. But in early December, this will be added entirely free to our Platinum members’ service (as always) – along with similar strategies on the S&P 500 and Dow Jones Industrial Average. It’s our way of going out with a bang for TradeSmith’s 20th anniversary year, which wound up being one of the most exciting years in TradeSmith history. 2025 brought about the Seasonal Edge strategy… the Mega Melt Up indicator… the Snapback strategy… the AI Super Portfolio… Jeff Clark’s Convergence indicator… and so much more. All of these things became part of the TradeSmith Platinum membership at zero additional cost. If you’re already a TradeSmith Platinum member, consider this our way of saying thank you for your dedication. TradeSmith wouldn’t be what it is without you. And if you’re looking for the chance to join TradeSmith Platinum, keep your ear to the ground. We’ll have a big announcement about that coming soon. To building wealth beyond measure, 
Michael Salvatore
Editor, TradeSmith Daily | 
Post a Comment
Post a Comment