August fifth, two thousand twenty-five
《Tactical Trade Structures Across Daily, Weekly and Monthly Horizons》
《Viable Trades at Daily, Weekly, and Monthly Time Frames》
Market attention is focused mainly on ISM services data, if today’s data remain steady, it should be viewed as a somewhat supportive signal, suggesting that last week’s data may have been an outlier.
Chart: Strategy economic calendar
Regardless of the outcome, enthusiasm for AI has reached an almost feverish level. Theme two, mentioned in yesterday’s Notes, is also more clearly reflected in the artificial intelligence sector; after the market close, PLTR said that AI’s impact on its results was on a staggering scale...
If the AI trade a few months ago was still discounting expectations for the unknown, once the impact is actually reflected in results, this thematic inflow of capital will gain a more lasting impetus.
Chart: Palantir CEO Alex Karp said AI is driving leverage across the business.
And so, combining this with yesterday’s Notes 250804 “Hedging, Moderation, Pullback,”
We can add further detail to a few points:
1 U.S. equities will see Hedging trades and thematic trades occurring in parallel a period of time
2 Thematic trades exist, but will be limited to the AI sector，insufficient to sustain momentum across a broader range momentum to persist
3 The market environment will have two structures: one persistent and one relative.
4 Persistence is achieved through hedging that rallies on the downside of the economy. In fact, Valuations of long positions in growth-oriented cyclicals have in fact returned to the 4.9 highs. In the U.S. equity market, hedging will create another persistent sector rotation, with defensive sectors(those whose beta to U.S. GDP growth is below the overall beta of the S&P 500)outperform on a relative basis.
Chart: The valuation of Cyclicals relative to Defensives has recovered to its pre-4.9 peak
We expect this valuation spread to move lower
This part is suitable for weekly trades, can accommodate relatively larger amounts of capital, and allows a higher margin for error.
5 Relativity is driven by thematic capital flows linked to AI. This relative strength tends to persist more when the U.S. dollar index rises, meaning it is less prone to pullbacks; when the dollar index retreats, the speed and magnitude of the buy-the-dip move also exceed those of other declining assets, as we saw yesterday.
This part is suitable for daily trades; the swings will be larger, making it suitable for relatively small amounts of capital seeking large moves.
Actually, besides these two trades, there is another direction in which we can position ourselves Position ahead of the move, however, It will probably take time; we have started buying this part, but will do so gradually, and The core of the expected price swings will most likely materialize in commodity markets, at this point, some of you should already have figured it out: yes... it is Stagflation trade。
The trajectory of stagflation has always been within our expectations. We have been checking the prerequisites one by one and studying various past cases, but it is indeed still not a fully formed direction.
The chart below is from Weekly Wrap 250608; I wonder if anyone still remembers it:
Chart: Unemployment is being contained, but aggregate demand continues to slow
It is hard to say, The probability of failure for this part is relatively high because it has not yet taken shape!However, given that valuations in this sector are already relatively low, there is a certain margin of safety, and one can enter to an appropriate extent based on one’s own judgment.
A few points are worth mentioning:
1) The holding period is on a monthly time frame, but the market may move ahead of us; if that move becomes extreme, we need to exit early. In other words, to some extent, we are entering ahead of time and waiting for an extreme point;
2) The core of the expected price swings will most likely materialize in commodity markets. Taking long positions in these companies within the market would be relatively safe, but the swings will not be large. Given the low valuations, this is an asymmetric trading opportunity, but expectations should not be too high;
3) Long positions would mainly be in commodity-related assets, including companies in oil, natural gas, gold, industrial metals, agriculture, and commodity capital expenditure, as well as defensive compounders that perform well during stagflation, such as utilities, pharmaceuticals, and high-quality consumer staples;
4) Those with the ability can selectively add short positions in areas that perform poorly in a stagflationary environment, including low-quality consumer companies, consumer finance, regional banks, fuel-intensive cyclical industries, and unprofitable technology-like companies;
Some specific candidates are posted on the U.S. Market Planet:https://www.meridianresearch.app/home?product=us-strategies
We require the traders in our own trading room to produce roughly one single-market note every 2 days, covering U.S. equities, A-shares and Hong Kong stocks, and commodities. We select the better ones and post them in the corresponding small “planets” (we also include some of our own commentary, with certain details anonymized).
Those interested can subscribe as needed (subscribe only if you need it; don’t waste money):
U.S. equities:https://www.meridianresearch.app/home?product=us-strategies(Xingzhi)
A-shares / Hong Kong:https://www.meridianresearch.app/home?product=asia-strategies(Ganglong)
Commodities:https://www.meridianresearch.app/home?product=commodity-strategies(Dixin)
The level of detail will probably be industry-specific. On the mainland, we will try to avoid crowded trades; if we write too specifically, people may get in ahead of us. We may be able to be more specific about U.S. equities, but readers will still need to think things through and fill in the details themselves, There are no trades to follow directly!。
The overall win rate has been fairly good lately.
We’d like to know whether you like this new format for Notes. If you think something else would be better, please leave a like to let us know. Based on the feedback we receive, we’ll decide whether to continue with this kind of content or return to the previous column format.
Best wishes.
2025.08.05
Note: All content herein is for reference only and does not constitute investment advice or serve as a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for their decisions.