I’ve been a trader and investor for 44 years. I left Wall Street long ago—-once I understood that their obsolete advice is designed to profit them, not you.
Today, my firm manages around $4 billion in ETFs, and I don’t answer to anybody. I tell the truth because trying to fool investors doesn’t help them, or me.
In Daily H.E.A.T. , I show you how to Hedge against disaster, find your Edge, exploit Asymmetric opportunities, and ride major Themes before Wall Street catches on.
Table of Contents
H.E.A.T.
For the last few weeks, the market has been acting like a stressed-out investor with two screens open: on one screen, it’s doomscrolling “AI will replace everyone” headlines… and on the other, it’s panic-selling the very plumbing that makes AI possible. That’s the weird tell underneath the tape: software gets a sentiment pop off the “SaaSpocalypse” lows… while semis lag the Nasdaq in a way that’s starting to look less like fundamentals and more like positioning and de-grossing.
Here’s the setup, and it matters. The SOX–NDX decoupling that began in Sept ’25 was a classic “AI shovels” trade—semis ran hard and at the peak SOX was up ~44% vs NDX. Then the air came out: positioning got frothy, expectations got ridiculous, and any whiff of “peak capex” turned into an excuse to sell first and ask questions later. Two straight weeks of relative pain—SOX -1.75% two weeks ago and -6% last week—is exactly how these trades end when the marginal buyer is levered and the marginal seller is forced. And this stat is the real punchline: in the last three years, weeks where semis lag NDX by -5%+ have been rare (four times)… and every single time, semis snapped back the next week, averaging ~+2.3% of outperformance. That’s not a guarantee—nothing is. But it is the kind of “market memory” that shows up when a move is flow-driven, not thesis-driven.
Why I think a rebound is plausible (and what would make it fail)
Why it can rebound:
Positioning reset is the precondition for leadership to resume. The semi complex was crowded for a reason (AI is real), and it got unwound for a reason (the market started pricing “peak everything”). When the unwind is violent, it often creates the next entry point.
Software’s bounce looks like “relief,” not “resolution.” The SaaSpocalypse narrative didn’t disappear—it just stopped accelerating. That’s enough for shorts to cover and for spreads to compress. It’s not enough, by itself, to re-rate the whole space back to old highs.
The market is starting to separate “AI spend” from “AI profits.” That’s bullish for some semis (the toll collectors) and bearish for some software (seat-based models, “nice-to-have” apps) even if the group bounces.
What breaks the rebound:
Any real sign of hyperscaler capex rolling over (not Twitter vibes—actual guide-downs, project cancellations, or “digesting” language that sticks).
Rates ripping higher in a way that smothers high-beta cyclicals (semis are still the market’s favorite lever).
A macro shock that forces another round of de-risking (semis get hit in the first wave, even if they recover later).
So the right way to frame it isn’t “are semis dead?” It’s: “Did we just get the kind of flush that usually sets up the next relative bounce?” Your data says yes—at least for a trade window.
How I’d express it: winners, losers, and a clean pair trade
The cleanest pair trade
If you want to keep it simple and keep it thematic:
Pair trade idea:
Long semis: SMH (or SOXX)
Short Nasdaq beta: QQQ
OR if you want to isolate the rotation more directly:Long semis: SMH / SOXX
Short broad software: IGV
Why this works narratively: you’re betting that the market’s recent move was an overreaction—chips rebound versus “AI fear” software, not necessarily that the whole market goes up.
Risk management thought: size it like a trade, not a marriage—because if the tape flips back to “AI is everything again,” both legs can move in ways that make your P&L look stupid for a week even if your thesis is right.
Winners: what I’d own if you’re playing a semi rebound
Think in “layers of indispensability.” The winners are the companies that sit in the narrowest parts of the funnel.
1) The “toll collectors” (hard to displace)
NVDA – Still the center of gravity for training, and increasingly the software ecosystem around it is the moat.
TSM – Everyone needs it, regardless of which model wins.
ASML – If cutting-edge nodes keep advancing, they’re unavoidable.
2) The “pick-and-shovel suppliers” (capex translates more directly)
AMAT / LRCX / KLAC – If we’re building fabs and memory lines to feed AI, these are the receipts.
3) Memory & storage (high torque, but you want the dip)
This is where “support/undercut & rally” framing fits perfectly: these names can be spectacular and painful.
MU – Still one of the cleanest AI-memory expressions.
SNDK – High beta, can overshoot both directions.
WDC / STX – Not “AI glamour,” but increasingly “AI necessity” as data explodes.
Translation: If semis are going to snap back, memory and equipment usually participate early because they’re both “real” and “liquid.”
Software: yes, you can get a bounce… but don’t own “everything”
Here’s the uncomfortable truth: software can bounce while the long-term debate remains ugly. That’s not bearish—that’s just how bear markets in sectors work. The first bounce is often mechanical (short-covering + mean reversion). The real bottom is when the market stops treating every AI headline like a surprise subpoena.
Software winners (the “AI increases demand” bucket)
If disruption is real, security gets more valuable, not less.
CRWD – Platform consolidation + AI expands the attack surface.
PANW – Scale and breadth matter when customers want fewer vendors.
FTNT – Network security doesn’t get “disrupted away” by chatbots.
ZS – Volatile, but the “zero trust” need doesn’t go away because agents exist.
Also interesting in the “defensible data/infra consumption” bucket (selectively):
DDOG – Observability becomes non-optional when everything is automated.
SNOW – If you believe enterprises centralize data to deploy AI, it has a seat at the table (but sentiment can be brutal).
Software losers (the “seat-license gravity” bucket)
These are the ones the market keeps looking at through the same lens: fewer humans → fewer seats → slower growth.
Workforce/seat-tied models (anything that smells like “per employee” pricing)
Low-switching-cost collaboration & point solutions (where AI-native entrants can replicate 80% of the value quickly)
Own moats and mission-critical workflows, not “nice-to-have per seat.”
So… does semi underperformance rebound?
My base case :
Yes, a tradeable rebound is plausible because the recent move smells like positioning/de-grossing and the historical “-5% relative weeks” snapback pattern is compelling.
But the bigger point:
Even if semis bounce next week, the market is telling you something about the next 6–18 months:
Software is no longer a “set it and forget it” compounder basket. It’s a stock-picker arena.
Semis are being repriced like a cyclical at the top of a capex wave. If the wave continues, that repricing becomes opportunity.
The market just tried to trade the end of the AI boom. If it’s wrong, semis lead the apology rally.
News vs. Noise: What’s Moving Markets Today
So here’s the problem investing during a war….
Sunday night we saw oil well over $100 and markets down around 2%. We opened yesterday down, recovered a bit, and then Trump tweeted that the war would be over soon. The S&P then closed up near 1%.
And oil….
I think they key lesson here is that you should not have been overly bearish Sunday night, and you should not be overly bullish now.
ETF News
A Stock I’m Watching
Today’s stock is Novo Nordisk (NVO)……
I have a hard time trusting this name, been burned before, but I want to get into the GLP-1s and HIMS just went up 40+% (was a stock of the day recently) and I think LLY is a beast, but I don’t like the chart here. NVO is eventually going to fill that February gap, just don’t know if it will be this month or 5 years from now. Keeping a close eye on it.
In Case You Missed It
Talking with Josh Brown about European Digital Sovereignty and European Defense….
I had the pleasure of speaking about UFOD on Stocks on Spaces Wednesday. Strangely we got cut off right as we were talking about potential Raytheon technology, so it’s in two parts…..
The H.E.A.T. (Hedge, Edge, Asymmetry and Theme) Formula is designed to empower investors to spot opportunities, think independently, make smarter (often contrarian) moves, and build real wealth.
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