02.23.26: Ideas For the Upcoming Week
Last week was another choppy week where we stayed above the 100 daily on the SPY.
The most important thing though is that we are above the 100 daily on the SPY. Until that happens, we remain bullish…but cautious…just because price action isn’t convincing enough to tell me we’re going back to highs. We are still a nice distance away from price breaking the 100 daily, and we’re also a fairly far away from the 21 daily crossing over the 100 daily.
The only slightly worrying part to me is just that we’re only 2% off SPY highs and 5% of QQQ highs, yet some tech names have been destroyed. Cybersecurity names like CRWD and OKTA lost more than 8% in a single day on Friday for example. This is either extremely positive for some individual names that you hold that have been sold off more than 20-30% (LMND for example for me), or it suggests we’re just at the start of a much bigger pullback. My two cents is that it’s the former, but I don’t play a guessing game in this market.
I follow some strict rules that will work out over the long run. Simple as that.
Whatever happens with price action this week, it’s important to understand that bearish sentiment and illogical narratives are driving the market right now. At some point, we’ll look back on these moves as a big opportunity. With that being said, I think it’s also important to let price action dictate what you do. The market can stay bearish and illogical for a lot longer than we may think.
Here’s two examples of the illogical narrative over the last week:
Cybersecurity: Cyber names like CRWD, OKTA, and NET all sold off ~8% in a single session after Anthropic released a preview of their Claude Code Security. Claude Code Security is an application security tool that helps developers write better code. In cybersecurity, it helps developers find vulnerabilities…but these still need human verification. It does not replace a firewall. It does not have the data that cybersecurity firms have. It’s not even close to being a competitor. With that being said, a lot of cybersecurity names have been trading at incredibly rich valuations for the last two years…which is why I’ve not batted an eyelid at most cyber companies.
I think cyber is finally becoming an interesting space again at today’s valuations… though it’s still on the premium side…especially stocks like CRWD.
Lemonade: LMND sold off from $74 at market open to $57 today (right at the 200 daily) post some very strong earnings. I’m still not completely sure why LMND sold off post earnings, but my assumption is that it has again been grouped into this basket of stocks which AI is going to “inevitably destroy”. I think there’s a good number of stocks in the market right now which deserve to be down…but there’s also a very good number of stocks which have been sold off for no apparent reason. LMND is one of those. ZETA is another one. PATH I believe is another one (though I fully understand why this one has been sold off because Maestro is still in the very early days and there’s no concrete evidence yet showing that PATH has strong agentic AI capabilities).
Here’s a quote from David Steinberg, CEO of ZETA:
“The future is not AI versus enterprise software. It is AI operating with enterprise software.”
Before I get into the ideas for the week, I think a good way to explain my current mindset is this:
I’m nowhere near the mindset of trimming more than I have already trimmed. I trimmed a good portion of stocks that were up +100-200% a couple weeks ago like SVM, ONDS, and ALB. I also reduced my exposure to stocks that fell below the 200 daily MA or broke key structure like CRDO, OSCR, and UPST. However, I’m also nowhere near the mindset of being very long here.
Price action is uncertain. I know many of my subscribers want to get in an out of positions regularly…but sometimes the best thing you can do is simply wait. Wait until things are clearer. Wait until structure is formed and a trend is formed. That may take a week, a month, or a year. Who knows.
For those out there who like more data…check out this chart by Subu Trade (on X). It shows the put/call ratio 1 week average. We’re currently at the highest level since the SPY crashed last April. If you look at the history of these spikes, you can see that generally they’ve come near lows.
Most definitely not the be all and end all…but something to perhaps consider if you’re feeling extremely bearish.
Before we get into my 3 main ideas for the week… I’m just going to share a screenshot from my spreadsheet that paid subscribers have access to.
You can access the spreadsheet here 👇
This tracks movements by sector on a daily basis. We’ve seen an extremely quick rotation, but most of the time themes that have momentum continue for months. That’s why I like to have a basket of stocks in each theme and track this on a daily basis.
The themes and stocks that are running quite hot over the last month:
Energy
Texas Pacific Land | TPL | +52%
Imperial Resources | IPRC | +60%
Kosmos Energy | KOS | +43%
Occidental Petroleum | OXY | +14%
Devon Energy Corp | DVN | +10%
Solar
Enphase Energy | ENPH | +35%
Sunrun | RUN | +21%
Shoals Technologies Group | SHLS | +15%
T1 Energy | TE | -25% (one to watch)
Optics
Lumentum Holdings | LITE | +87%
Ciena | CIEN | +39%
Coherent | COHR | +28%
Manufacturing
Parker-Hannifin | PH | +10%
Honeywell | HON | +13%
Regal Rexnord | RRX | +41%
Power Grid Upgrade
Sterling Infrastructure | STRL | +25%
Quanta Services | PWR | +19%
Hubbell | HUBB | +11%
Eaton | ETN | +11%
Itron | ITRI | +2.8%
Defensive Idea
Last week I spoke about AMZN as my more defensive idea so I just want to give a very quick update there.
So far, technicals on AMZN are looking strong. We just bounced off the $200 support level and had a nice jump on Friday back up to $210. It’s now my 4th largest position having just overtaken PATH.
You can see my portfolio here:
Today, my defensive play is going to be either XLU (S&P 500 Utilities Sector) or some of the key plays within this theme. If you want to play it slightly safer I think XLU is a great buy. If you want to bet on outsized returns through individual plays my favorites at today’s prices are:
Itron | ITRI | $4.6B market cap
The AES Corporation | AES | $11.75B market cap
Fluence Energy | FLNC | $3.0B market cap
MYR Group | MYRG | $4.4B market cap
Preformed Line Products | PLPC | $1.29B market cap
I think all of these will be key beneficiaries of the power grid upgrade.
“Billions of dollars of the most advanced hardware. Sitting dark. Not because the chips won’t work. Because there’s not enough electricity to run on them.” - Elon Musk
ITRI:
P/E: 16.5x
AES:
P/E: 6.8x
FLNC:
EV/Sales: 0.65x
MYRG:
P/E: 32.7x
PLPC:
EV/EBITDA: 14.6x
All these stocks will get added to my watchlist along with the other big grid upgrade plays like PWR, ETN, and HUBB. I’ll be tracking price action on this theme quite closely over the next week.
Neutral Risk
We’ve seen a clear breakout in the emerging markets over the last month with EEM (Emerging Markets Index Fund) just breaking above 2009 and 2022 highs for the first time.
