Good afternoon everyone.
Today I’ll be discussing two names that did everything right and got sold anyways. Two ideas this week. They showed up at the same time and for the same reason, which is that the market has spent the last two months punishing companies for executing. I know how that sounds. But I’ve got a defense prime and a power generator on my screen, both of which just printed record quarters, both of which raised or reaffirmed guidance, and both of which are sitting more than 30% below their highs. Different businesses, different risks, different clocks. I’m not going to pretend they’re one thesis because they aren’t. But the mispricing has the same shape in both, and when I see the same shape twice in the same month, I write about it. Call it the execution discount.
Housekeeping first, then the tape, then the work.
Volux Is Live
Quick one before the charts. Volux officially launched. If you've been here a while you know I've been building this thing for a long time, and it's the engine behind half of what shows up in these letters. The contract drilldowns, the premium boards, the flow snapshots. The LHX chain work further down this letter came straight out of it. It's live now. Go play with it / give it a whirl. Basic is free access to a few tools, including our partnership with TradingView .. yes, free charting!
Also, the subscriber Discord is open, and if you're paying for this letter and not in there, you're doing it wrong. Daily flow hits the Discord first. Setups get argued about in real time. A lot of what ends up in these letters gets sharpened in there before it ever reaches the page. Come argue / complain every 15 minutes. Joking, we like to have fun here. JOIN HERE.
Now let’s read the tape.
SPY
SPY is at 765, a couple percent off the highs after last week's fade, and I really only care about one level here. 758-760, the gold shelf I have drawn from the bull gap, the early August breakout zone. Hold it and this is nice consolidation after a ripper back up, a market that ran hard taking a breather. Lose it and we start talking about 754 and then 749.50, and the conversation changes. Volume on the pullback has been nothing special, which I like.
QQQ
QQQ is a bit messier. Tech is still stuck under the trendline coming down off the June highs, and price is pressing right up against it around 714 with a pile of moving averages sitting directly underneath between 707 and 714. Get through 718-722 and the pattern finally breaks upside. Until then, every bounce into that line has been sold and I have no reason to assume the next one won't be.
IWM
Small caps are the warning. IWM failed the breakout over 304 and today it knifed back through the short term averages, down almost a full percent while the big indices barely moved. That tight little August flag resolved lower. 289-290 is the pivot underneath. Watch this one, because if small caps keep leading down, the risk appetite that carried August is thinner than the index charts make it look.
MTUM
And then there's MTUM, which nobody watches and everybody should. The momentum factor topped in late June around 345 and has done nothing but print lower highs since. Two straight months. It's under every moving average that matters. What that chart is telling you is that the market has been quietly unwinding its crowded leadership all summer, and it's the same message as the software puts you're about to see on today's sheet. It also happens to be exactly the environment where the setups in this letter work. Money coming out of what already ran, hunting for quality that hasn't.
Today’s Flow
Start with the print of the day because it isn't close. Somebody sold 1,714 of the BE October 260 puts at a 62.40 fill. That's $10.7M in premium, collected, on puts that deep in the money. This is not premium harvesting. Sell puts that deep and you're saying one of two things. Either the stock is going up and I keep the ten million, or assign me the shares at an effective 197.60 and I'll gladly own them. Eight figures, on a power name, at the center of the AI energy buildout. Hold that thought until you get to the VST section.
