🍔Oversold Bounce (We Sold Stocks)

With the market falling, we switch to inverse ETFs to capture the breakdown in tech

Welcome back to MktContext where we study the US economy and time the stock market.

Current market timer: Bearish

We’ve said many times that this is a stock-picker’s market. Most stocks and the index are falling, which means it requires precision and market timing to pick the right stocks to buy.

Many of the stocks recommended in our healthcare picks continue to rally. One particular stock that stands out is Tenet Healthcare (THC). At the time, we wrote that “a retest to the 50-day moving average should be buyable.” The stock did exactly that and gapped up massively on strong earnings results. It is up over 30% in under two weeks.

THC daily chart earnings breakout

Amid the broader market pullback, healthcare stocks have held up well, along with financials and real estate. These are the sectors you want to own right now as beneficiaries of the ongoing market rotation.

Tech earnings

For years, a simple rule governed Wall Street: buy tech giants, mention “AI,” and watch stock prices rise. The Mag 7 lifted the entire stock market on nothing more than a promise that AI would usher in a new era of productivity.

The latest earnings from Google and Tesla tell us we’ve officially entered a new, trickier phase of the cycle. We are moving away from pure excitement around AI’s potential, and into the harsh reality of what it actually costs to build.

On the surface, Google’s earnings results beat all expectations. Sales were strong and profit numbers eye-popping, but look under the hood: debt has doubled in six months, and spending exceeded generated cash flow.

For the first time, Google’s AI capital expenditure reached over $200B/year. And yet they’re still losing to Anthropic and OpenAI (that’s Claude and ChatGPT). On the conference call, CEO Sundar Pichai sheepishly admitted that staying at the frontier is not easy. That was not the message investors wanted to hear; the stock sold off -7% on the day.

GOOG gap down on earnings

Tesla presented a similar theme. Sales rose a lot, but they also spent more money than they raked in. For months, Elon Musk has been hyping up self-driving Robotaxis and Optimus humanoid robots. But these ambiguous moonshots are still in development rather than generating real cash. Building tomorrow’s autonomous tech and robotics requires massive spending today.

TSLA shares are trading down -17% for the week.

Intel on Friday fared no better. Earnings beat expectations. Capital expenditures for 2026 bumped up from $18B to $20B. 2027 expected to be “significantly higher”. The stock sold off heavily on the day.

In any major technological revolution, the hype phase is followed by heavy construction. That’s where we are now. This phase is the toughest for stock prices because excitement meets cost reality. Tech giants are spending astronomical amounts on infrastructure out of fear of being left behind. Cash flow gets squeezed because the spending is immediate, but monetization is later.

So Wall Street’s favorite “AI Trade” and “Mag 7 Trade” are no longer a simple rising tide that lifts all boats. Investors are starting to ask the tough question: When will all this spending turn into real, lasting profit? In our view, not anytime soon.

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• Iran war continues

• Enter the Houthis

• Higher interest rates

• Technical signals turn bearish

• Short-term shorts

• Our portfolio (we sold stocks)

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