Market Gap Narrows and It’s Time to Put Cash to Work
The AI complex is getting hit on earnings while small caps, biotech, retail and defensive pharma hold up. Here’s what I’m buying.
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The gap in the two-tiered market continues to narrow. The AI complex is being hit hard on earnings news from Meta Platforms (META), Tesla (TSLA), IBM (IBM), Lam Research (LRCX) and others, and the Roundhill Magnificent Seven ETF (MAGS) and the VanEck Semiconductor ETF (SMH) are leading the way lower. Meanwhile, small caps, biotechs, retail and defensive pharmaceutical stocks are holding up.
That is what I was looking for on Thursday morning. It was an ugly open, but the laggards are holding up better than the AI names, which tells me the rotation is still intact. This isn’t a broad flight from risk. It is money coming out of the crowded AI trade while the rest of the market holds its ground.
Building SpaceX on Weakness
I’m looking at several trades here. First, I want to build up my SpaceX (SPCX) position on weakness. I added a little on Thursday morning, and I have room to double my position, but I’ll do it incrementally. SpaceX is a longer-term core holding for clients at Hammerhead Financial, and I’m not going to try to pick the exact low. The report showed that the company is turning its spending into revenue faster than most, and selling like this gives me a chance to build the position at better prices.
Adding to the Laggards
In the more aggressive portion of the portfolio, I’m looking to add to biotechs such as BridgeBio Pharma (BBIO), which has found support and has been inching back up. That is the kind of action I want to see in a beaten-down group. The stock stopped going down, held a level and started to turn up, which gives me a logical place to manage risk.
I also added to Oscar Health (OSCR), which I highlighted recently as a play on medical insurance. Its 2027 expansion answered the main concern about the stock, and it continues to hold above its 50-day moving average.
A small speculative biotech, Zura Bio (ZURA), is on my radar, and I have a preliminary position. The company is developing tibulizumab in Phase 2 trials for hidradenitis suppurativa, a chronic inflammatory skin disease, and systemic sclerosis. This is a speculative name, and I’m keeping the position small.
Five9 (FIVN), which I wrote about earlier this month, is exhibiting good relative strength, and I may add to that as well.
TeraWulf (WULF), the bottom-fish trade I wrote about on Wednesday, is also on my radar. I have a partial position, and I’ll look to add if it can stay above the $12 level. My stop remains near $11.
Game Plan
The gap between the two tiers is closing, but not in a straight line, and days like Thursday are when it makes the most progress. I’m putting some cash to work in names that are acting well and keeping the positions sized so I can manage them if the market turns rough again. I like how things are developing, and I’m ready to deploy more capital as the charts develop.
At the time of publication, DePorre was SPCX, BBIO, OSCR, ZURA, FIVN and WULF.
