Tuesday 28 January

Good Morning,

A dramatic day yesterday as the market digested the implications of DeepSeek. At the pre market low the S&P traded at 5917 but recovered half the losses by the close. We closed many of the puts yesterday with a healthy profit. Last night President Trump commented on the DeepSeek development saying that ‘it is a positive development, instead of spending billions and billions you can come up with the same solution for less’.

Notably last week the CEO of Norges, the World’s largest sovereign wealth fund said ‘If you are a long term investor you should be widely diversified across asset classes but the best thing to do is nearly always the opposite of everybody else, to sell US tech stocks, sell private credit and buy China which is out of fashion but it is very tough to do, if you are a contrarian there will be periods where you will underperform’.

The DeepSeek issue has posed new questions for Wall Street, is the CAPEX spending too high and how much of it is necessary? Microsoft alone has earmarked $80bn in CAPEX spending for 2025. Also, how fast is China catching up in the AI race and will President Trump attempt to curtail Chinese progress with more tariffs?

We had been discussing the vast amount of puts for the February monthly expiry last week, which had the effect of holding the market up with positive gamma, however late last week those puts had been closed. This gave us a good window to short and that was the main reason I added shorts last Friday. In the meantime some puts have come back in but in far smaller volumes as you can see here below. 6100 and 6210 are the major strikes for February and both should act as strong resistance as we approach that date barring something unexpected from Powell, more on that below.

Where do we stand now? Well, as you all now I do not advise chasing this market above 6,000 or perhaps 6100. There is one caveat however, if Powell were to end QT and restart QE then we likely see further all time highs.

Yesterdays Trades:

SMH 247.50 P closed +475%

SMH 247.50 P closed +379%

ARM 120 P closed +90%

SPY 604 P closed +282%

HOOD P closed +90%

SPX 6030 0DTE C exp 0

SPX 6015 ODTE C closed +394%

SPX 6005 ODTE C closed +104%

In the latest piece from Cross Border Capital they suggest that Powell may be forced to restart QE (but won’t call it QE), the bottom line here is be cautious with shorts, Powell speaks tomorrow and may hold course for now, if he doesn’t announce any change in policy the market may sell in order to force his hand but if he does close any shorts.

Below in our members only area is an excerpt from their latest note to clients.

MEMBERS AREA

POWELL’S NEXT MOVE/NEW TRADES/SPX/QQQ/NVDA/TSLA/AAPL GAMMA