Purple Drink's 7/1/2025 Market Recap
Rotation
Hi everyone, hope you are all having a good start during this abbreviated week in the market.
For those who may be less familiar with my recent posts, I have been extremely bullish on US equity markets since mid/late April, noting:
Capitulation out of the post-Liberation Day lows
Multiple breadth thrusts including the Zweig Breadth Thrust we anticipated in April
A Power Trend triggering recently, which indicates an “all dips get bought” environment until further notice
The newly elected White House shifting sharply from a message of austerity during Q1 to the realization that they have to overheat the economy in an attempt to “outgrow the debt” - completely unrealistic, but informative for risk-on
Persistent bearish sentiment and lack of price recognition, overall a sad state of affairs for the bears
Let’s review the current state of the market.
MARKET OUTLOOK & SUMMARY
SPX continues grinding higher. The market digested Monday’s push up with a quiet inside daily candle on Tuesday. I don’t see any imminent reason why this can’t continue pushing higher into the July 4th holiday. Judging by the index action it was a tame day, but things were anything but that under the hood.
There was a violent rotation into small cap stocks today. IWM finally took out the 200 day (red line) with force, triggering some interesting moves in the small cap universe. Today was the first day of the new quarter in a fairly illiquid market due to the summer holiday week, but these are notable moves nonetheless.
Homebuilders and regional banks both had a meaningful push higher today.
ITB
KRE
While it’s certainly possible that these moves indicate front-running of rate cuts, I’m hesitant to make such connections because frankly I don’t see the point. Regardless of the reason why, both these charts look ripe for continuation and I’ll be on the lookout for single names within each ETF with the best setups. I’ll offer up some names in Thursday’s post, and as always will post any trade executions in the live Substack chat.
On the other end of the spectrum, despite a 2/1 positive breadth day, momentum stocks had a swift unwind on Tuesday. As noted by my friend and strongly recommended follow Connor Bates of Revere Asset Management, the price action was particularly notable in momo-land today.
Examples today included NBIS, PLTR, and HOOD - each of which were leaders off the Liberation Day lows.
PLTR
PLTR continues to show weakness after that nasty rebalancing candle into the end of Friday’s session. The daily 8ema is now hooking below the 21 day and if that 50 day (blue line) doesn’t kick save it soon this become a borderline funding short.
NBIS
NBIS stopped me out today at breakeven ($51) and closed below the 10 day that has been its trendline since May. Even if it were to bounce, the chart is starting to look sloppy and that 21 day is coming ever closer. It better hold or this too will be indefinitely weak.
HOOD
The liquid leader off April lows, HOOD had a textbook extension candle today. It rejected the $100 level and sold off on its highest volume day of 2025. Notice how none of the daily candles since ~February look as alarming as today’s - this sets a pretty clear line in the sand for a potential interim top.
There were numerous other single names, but it seems to me that this momentum cycle has run its course and is receiving a rest. There are numerous other opportunities in the market and I’ll simply have to shift gears to look in other nooks for opportunity. Other fish in the sea!
RECENT TRADES
I sold a bunch of momentum names late last week and today. I generally have a rule that when my portfolio receives negative feedback in back to back weeks it’s time to lighten up, at least for a short while. Names that I’ve sold include TEM profit taking on Friday, OSCR profit taking and NBIS/SOUN stopouts at breakeven today. I remain in MSTR for at least one more session because I am a masochist.
On the more promising side, I continue to believe SG offers an interesting risk/reward and remain positioned in it. I added to my 8% long position today with a January 2026 Risk/Reversal - Short $10 puts to fund Long $28 calls for a $0.18 credit. Assignment at $8.95 would imply an incremental 6% long position.
On the daily chart above, SG has a double bottom with a reclaim of the 21 day. The 8 day had a bullish cross over the 21 day on Monday and the stock put in a nice inside daily candle on Tuesday. This stock looks like it’s trying to grind out a bottom, and if that is in fact the case you have a name with recent price memory into the $40’s now trading at 2.5x last quarter’s annualized sales. The company is obviously far from a value stock, but you are no longer paying the ridiculous multiples it was offering just a few months ago.
Additionally, option flow has ramped on SG. It’s not my primary filtering mechanism, but doesn’t hurt to see on a stock I was already very interested in (data courtesy of James Bulltard).
I additionally sold more puts on AR today. Already positioned in short June 2026 $33 puts from a few months ago, I added short August 2025 $35 puts for $0.95 / contract with the hopes of being assigned a 16% positioned at $34.05. Having traded AR multiple times over the past few years and knowing the company well, I’d be eager to go long at levels slightly below today’s price near the 200 day which has held all year long. Worst case is I harvest some premium, win win.
That will cap off tonight’s post. I will be back on Thursday with the usual once a week recap for paid subscribers. I hope you all have a good last few days of this short trading week in the meantime.
Disclaimer:
This newsletter is for informational purposes only and does not constitute financial advice. The opinions expressed herein are those of the author. All investments involve risk and past performance is not indicative of future results. Investing in stocks carries inherent risks, and you should always conduct your own research and consult with a qualified financial advisor before making any investment decisions. The author is not responsible for any actions taken based on the information provided in this newsletter. By reading this newsletter, you acknowledge and agree that you are using the information at your own risk.