Reverse RobinHood

The HOOD chart tells you how retail traders are doing. HOOD has attracted mostly millennial retail traders who caught the investing bug during Covid and have been addicted ever since.  They post on Reddit wallstreetbets and Stocktwits. Their top holdings are NVDA, TSLA, PLTR, bitcoin and ether, and an assortment of pumped up but now deflating speculative tech stocks in one of the following sectors: AI adjacent play (energy, nuclear, data center), space, quantum, and semiconductors.   When retail traders are doing well, their account balances go up, they trade more, and HOOD makes more money from payment from order flow.  When retail traders are doing poorly, their account balances go down, they trade less (size), and HOOD makes less money from payment from order flow.  No, Robinhood is not there to take from the rich and give to the poor.  They are the reverse Robin Hood.  They take from the poor and give to the rich.  Robinhood has gone a long way to enriching those at the HFT firms Citadel, Susquahanna, Virtu, Wolverine, etc.  

Robinhood investors had a very difficult Q4 in 2025, losing 24.6%, even though the SPX was up over 2% on the quarter.  And so far in 2026, the losses continue, even as the SPX remains in a tight range, flat on the year, while Robinhood traders have lost an estimated $4-5 billion in January.  

The pain is real, as you can see HOOD stock take it on the chin ever since their clients started losing boatloads of money since the October 2025 top.  Based on the HOOD chart, I think Jim Chanos's estimate of Hood customer losses in January are low.  

The trading performance of Robinhood customers may seem irrelevant to the overall market, but it reveals a lot about the financial situation of retail investors.  Since stocks are now a large portion of their net worth, investor psychology plays a big part in their trading.  The bigger the position, the bigger the emotion.  While retail investors were motivated by greed due to their strong performance from January 2023 to October 2025, things are changing now.  Previously, big Hood retail investor down swings were a result of a weak SPX/NDX.  But over the past 4 months, the SPX/NDX are barely down, but retail investors are getting pummelled in this market.  It is a game changer.  The sharks are smelling blood and going after them.  

They are in all the wrong stocks and assets.  They are loaded up on crypto and stocks like PLTR, OKLO, IREN, RGTI, IONQ, ASTS, HIMS, etc.  To make matters worse, Hood traders follow the herd, chase moves, and usually buy the most near tops.  All of their favorite holdings are down big from their 52 week highs.  Hence, they are in big drawdowns, even at SPX 6830.  

Fear is now a factor.  Investors don't make many mistakes when they are making a lot of money.  They make a lot of mistakes when they are losing a lot of money.  Fear is a stronger emotion than greed.  I would be on the lookout for lots of fear based trading from retail traders in the coming 12 months, mainly because of the Wall St. greed machine.  When Wall St. sees an opportunity to dump lots of supply at high prices to the public, they will.  

Later this year, those retail investors will be flooded with tons of supply in the speculative tech sector.  We are going to be getting huge IPOs in 2026 from Space X ($1.5 trillion estimate), Anthropic ($500 billion estimate), and Open AI ($1 trillion estimate).  Add to that  a bunch of chunky sized AI related IPOs coming from the private markets.  Private equity is looking to cash out and get liquid as they are having a tough time selling their bags in an oversaturated and overpriced private asset world.  Elon Musk is many things, good and bad, but one thing he is exceptional at is playing the market.  Space X buying up xAI and then IPOing as quickly as possible at the final stage of this bull market will end up being a boss move.  

I am seeing more bearish calls from traders on Twitter.  Just a month ago, they were quite bullish, and very complacent.  But ever since the Greenland fiasco, investor confidence has been getting worse.  Now the focus is on what stocks get hurt by AI, rather than what stocks benefit from AI.  The options market is acting like the SPX is down 10%, not 2%.  You are seeing similar put/call ratios as in mid November, when the SPX went down 400 points from the highs to the lows. 

Whenever you see this much put buying on just a small dip, it usually means that you won't be getting a bigger dip.  All the put buying means that investors are well hedged for more downside, making the downside less likely to come.  

Even while they are buying puts, they also keep piling into the market like mindless robots.  Retail equity inflows according to JP Morgan are coming in hot and heavy.  Those that say that this is the most hated bull market of all time (quite a few that say this) are talking nonsense with no data to back it up.  It looks more like the most loved bull market of all time.  

The ETF inflows are now going from mostly tech, to non-tech.  You are seeing the highest sector inflows into non-tech stocks over the past 15 years, at +3.7 std. deviations above the norm.  

While retail traders keep getting pummelled as they continue to pour their money into the market, I wouldn't bet against them continuing to pour more funds into this market.  Tax refunds will be much bigger this year, and tax refund season peaks from mid February to late March.  That also happens to be when the most equity inflows occur.  

Shorts will be fighting an uphill battle with all the tax refunds coming down the pike.  These inflows should last into April, where they will peter out, which could coincide with the final top for the SPX.  The liquidity is on the bull's side for the next several weeks.  The main reason I would rather be a buyer of dips than a seller of rips.  Long term, I agree with the bears that Nasdaq weakness will eventually lead the market lower, as the AI hype wears out and the hype doesn't match earnings potential.  Along with increased tech supply via jumbo sized IPOs and lockup expirations coming later this year and in 2027.  But short term, the elevated put/call ratios and fiscal pump are bullish factors.  

Nothing notable for the equity indices in the COT data released last Friday.  For precious metals, you continue to see de-risking from speculators, and open interest dropping, which usually means a range bound market and reduced volatility going forward.  No strong opinion on the metals here, they are acting stronger than expected after the blowoff top.  The Chinese New Year will keep the most aggressive buyers of the metals on the sidelines for the next week, so it will be interesting to see how gold and silver hold up during this period.  I fully expect the Chinese to come roaring back with aggressive buys after their long holiday, so I wouldn't short gold here.  Historically, gold and silver are quite strong for the month after Chinese New Year.  

Will be looking to buy the dip in SPX this week. SPX 6800 seems to be a durable support zone, and I will be looking to buy around the 6750-6800 zone.  Bottom line, short term bullish, long term bearish.  

Violent Ping Pong

If you ever watch ping pong pros play a long point, you see how much effort it takes to hit a small ball back and forth.  The ball just goes from one side to the other, but there is a lot of energy expended.  This stock market is violently going up and down.  But it ends up in the same place.  Its a ping pong match.  Sectors are making big moves, but the index is relatively calm.  Correlation is low. Intraday volatilty has gone up, even day to day volatility has gone up, but week to week volatilty remains low.  

It reveals supply and demand equlibrium at the index level, but disequilibrium at the individual stock and sector level.  Tech stocks, in particular software has been weak.  Consumer staples, industrials, energy, and materials has been strong.  Combining -8 with +8 is zero.  Sectors are ignoring the index, moving to their own beat.  The index is also ignoring the sectors.  

Passive inflows are keeping the beach ball afloat. There is still risk seeking capital entering the system via retail investors, but it is being offset by reduced stock buybacks due to AI capex.  Before the AI capex boom, stock buybacks were the axe.  Now its passive investing flows via retail investors who have been conditioned to believe that equities are the best long term investment, no matter what.  FYI, equity inflows are the greatest from January to April, and then tail off into the fall, where they are the lowest.  

Hyperscaler capex has gone from $200B in 2024 to an estimated $600B in 2026.  Corporate buyback trends have made a big down move since 2024.  They are reflection of big cap tech doing less buybacks in order to fund capex on the AI buildout.  

Some counterintuitive moves are happening among retail favorite stocks.  While retail continues to pile into individual stocks (see below), its not having the expected effect of higher prices.  Instead, Reddit Wall Street bets type investors are experiencing tough times.  Even with the SPX just 1% below all time highs.  

Bitcoin/ether are trading like they have the plague.  TSLA and PLTR continue to lag badly.  Same goes for nuclear, quantum, drone, and AI data center plays.  Even the beloved space theme has been weak lately.  Its a world of pain for retail, even at SPX near all time highs.  This is an ominous sign.  Their disregard for valuations is hitting back, as the market now is less friendly to bets on obviously speculative and overvalued tech stocks.  

Once again, this reminds me of spring and summer of 2000.  After a huge influx of retail money into stocks the previous several years, the index entered a stall period, unable to go higher.  Semiconductors were the hottest sector.  With the SPX near all time highs, lots of retail favorite stocks were lagging, except a few select internet related favorites like CSCO and MU.  Consumer staples and energy were outperforming tech.  And in 2000, you had lots of dispersion, with many Hindenburg Omens signals firing off.  Lots of new highs and lows as the index was near the highs.  Like we’ve seen the past several days. 

On that list of signal dates, there are quite a few that are around significant intermediate to long term tops.  July 2007, January 2018, September 2018, January 2020, December 2021. 

There are many bearish long term signals in the market, which I have noted earlier this year.  Last week you had a mini flush out of risky assets, in particular precious metals, bitcoin, and SaaS stocks.  There a couple of bullish short term signals coming from hedge fund shorting activity and the options market.  

GS Prime book saw the biggest increase in short trading flow among US single stocks over the past 5 years.  

You also have seen elevated put activity, similar to November 2025 levels, which saw lots of short term volatility but eventually led to a V bottom.  ISEE index is back down towards the levels seen 3 months ago.  

Investors are getting well hedged for further downside, which will mitigate any reflexive effects from investor selling.  The ISEE index 20 day moving average is still not close to the November lows, so it may take a few more days of a choppy down move before you get a tradeable bottom.  

Big picture, the bearish long term signs continue to be confirmed by market price action, with activity very similar to early 2000.  For the short term, you have bullish fiscal flows from the OBBA bill which will counteract the bearish long term signals.  Income tax refunds in 2026 are going to be about $1000 more than the past few years, which will be a short term stimulus.  Some of that is priced in, as OBBA is one of the reasons investors are so bullish for the start of 2026.

 

The talk of the Street has been Anthropic's Claude taking over the software world.  Now everyone is extrapolating an LLM wrapper as a cheap replacement for coding and software development from engineers.  The SaaS stocks are getting obliterated.   LLMs are probabilistic engines, and they are only as good as the data that is fed into the model.  And there is a lot of junk data out there.  No matter how fast and expensive the LLM is, it doesn't change the quality of the data.  

Investors are extrapolating the current trends and improvements into infinity.  But AI doesn't get better like semiconductors did following Moore's law.  There is an S curve in technological advancement, and AI seems to be much further towards the flattening out stage than people believe.  ChatGPT is a perfect example of diminishing improvements with each edition.  The jump in performance was much bigger from GPT2 to GPT3, than from GPT4 to GPT5.  Many complained that GPT5 was almost like GPT4, and were massively disappointed.  You didn't see that in CPUs until the 2010s, when Intel CPUs couldn't make anything much faster, so they just overclocked their previous CPUs to improve performance.  It took Intel over 30 years to reach that performance wall.  Its taken OpenAI less than 3 years to see that wall.  And while  some people may think Anthropic is now the top dog and OpenAI is a runner-up, these LLMs are very similar to each other.  You can tweak OpenAI's model to make it look like Anthropics.  What Claude can do now will be similar to what it can do in 5 years.  Those extrapolating the AI improvements over the past 3 years due to more intensive compute are trying to fit Moore's law into a technology that doesn't apply.   

Software companies were loved due to the SaaS revenue model, but they got tremendously overvalued.  And they issue tons of stock based compensation, which inflates their earnings.  These big down moves in growth stocks happen because of overvaluation.  And people say that valuation is not a timing tool.  It is not a good short term timing tool, but it is a very good long term timing tool.  

The COT data didn't reveal much for the indices.  It did reveal that the blowoff top and subsequent violent pullback in gold caused a big reduction in long positioning.  Open interest is down huge over the past 2 weeks.  Lower open interest means that you have taken out a lot of weak hands/scared money.  It also means lower volatility because you will see a lot less forced buying/selling going forward.  I expect a range bound market for gold and silver for the next several weeks.  

Last week, you saw violent price action ending with a strong Friday rally in SPX.  CNBC Fast Money experts seem more bearish than usual.  That usually signals a short term bottom in bull markets.  But it is an aging bull market, and it has shown its age in the past few months.  In bear markets, CNBC "experts" being bearish doesn't mean much.  The best buy the dip assets out there seems to be gold/silver, followed by international equities, and then SPX.  The worst is bitcoin/ether.  Bitcoin is trading like a classic post bubble asset.  I expect a milder version of what is happening to bitcoin to happen to precious metals in a few months.  Still remain long gold, but with plans to exit this week.  

Six Sigma Metals

 We are living in interesting times. Talking about the SPX or Mag7 earnings is like talking about the weather as World War 3 begins. The precious metals is where the action is. Its where fortunes are being made and lost. Its where longs and shorts are involved in a bloody battle. Last week, shorts finally capitulated and FOMO bulls overstepped their bounds.  

Hindsight is 20/20. Given how long and strong the uptrend in gold and silver were, it was likely to end in a highly volatile and spectacular fashion. The precious metals have stood out as the strongest of the speculative assets since September. By then, China was also catching the fever. China has only added fuel to the fire. 

Unlike stocks and bonds, China is a major player in commodities. They are not just a tail wagging the dog. They are one of the big dogs. They were the ones inciting a short squeeze in silver with their rampant speculative buys in the Shanghai futures market. COMEX shorts in silver were getting squeezed indirectly by the speculative longs in Shanghai. The Shanghai silver premium has been hovering around $12-14, way above the low single digits in the fall. China caused the blowoff top. 

It was about as extreme a parabolic move as I have seen in a major asset since Nasdaq in 2000. While a lot talk about the crazy move in silver, the move in gold is more spectacular from a monetary view.  Silver is much more speculative, much smaller, and easier to push around than gold. Gold going up 12% over 3 days and then dropping 14% in 1 day is literally off the charts.  I am a counter trend trader, but instinctively, I knew that it was dangerous to short silver and even gold. I did try last Monday and was too early and bailed out for quick losses. 

Before the blowoff top, the upside potential was still unknown. The risk in being short was high because of the unknown upside. Because of the weak shorts out there, waiting to be taken out by sharks smelling blood. Investment banks have a full view of all the positions in the futures market. Word spreads quickly among bankers. They know who is running low on margin. They know who are feeling the pressure and about to stop out. It doesn't mean that shorting before the blowoff is dumb. Just high risk. Of course, this risk comes with big rewards. The big reward was the six sigma down move on Friday. 

To get these kind of moves, major players must have been throwing in the towel. It was a super deep cleanse and flush out of positions. It changes the calculus moving forward. Weak shorts have been taken out in full. This will make short covering pressure nearly non existent. 

On Friday and Monday, the tables were turned.  Friday and Monday combined was a savage 1-2 combo aimed straight at leveraged longs who stayed with the trend.  Longs have finally experienced some serious pain.  You also had extreme volume at the top, creating tons of bagholders. They will act as future resistance. With the shorts taken out, it will be longs that will have total control of the market for the next several weeks.  That is not a good thing.  Short covering was one of the main drivers of this move higher from the fall to now.  Now short covering will no longer be a factor going forward.  

Following a blowoff top, you usually get a reflexive bounce that retraces 50 to 70 percent of the down move from the top.  Investors who don't like to chase or buy near all time highs come in to buy, and they support the market for 1 to 2 weeks. After this latecomer led rally, with shorts already taken out, saturated long positioning and bloated prices weighs on the market.  You make lower highs and then suddenly the market cracks again, dropping sharply.  This usually happens 1 to 2 months after the blowoff.  

The SPX and NDX markets seem uninteresting by comparison.  As they say, nothing ever happens.  The action overnight was not in SPX futures, but in precious metals, and Asian indices, in particular, the Kospi.  The Korean stock market is now one of the hot, crowded markets filled with fast money longs.  They got a deep cleanse on Monday.  Its still only back to the previous all time high levels of just 10 days ago.

For the US market, you still have the occasional Trump news bombs but the market is getting used to it, and reacting less and less.  The VIX remains bid, but there haven't been big one way moves to justify it.  Its been choppy, but going nowhere fast.  Put/call ratios are rising, and you can sense the nervousness.  I see very little edge and its unpredictable.  I am watching on the sidelines.  It is notable that the big down move in MSFT was due to AI capex spending concerns.  We are now seeing the market punish big capex spends in AI if there are no increases in revenue to justify it.  META got a pass this quarter because it was already beaten down for it 3 months ago.  We are getting closer to the end game for the AI circle jerk.  I give it 6 months, at the most before the house of cards come crumbling down.  

When you get panicky moves in markets like you saw on Friday and Monday, you see where the fast money is.  You locate where the biggest pain points are in the market.  1. Precious metals.  2.  Asian indices, in particular, the Kospi.  3.  Cryptocurrencies, which has had all the downside but none of the upside.   

Got a small long in gold bought on Friday, will look to buy some more if it dips some more.  This is to play for a short term bounce.  It could last 1 to 2 weeks.  I will look to reverse to a short after a bounce.  Not looking to make any moves in SPX or NDX.  Tax refunds will be pouring in hot and heavy due to OBBA.  February and March will be the 2 biggest tax refund months, and that liquidity will be a positive for US risk assets at the margin.  So don't want to fight those inflows.