Daily Brief - How the AI called the top … and then the bottom

TLDR: Last week, we noted that the AI had correctly anticipated the market drop that followed the July peak. Of course, everyone can be right some of the time. You make enough calls frequently enough, some of them will be right. That’s why last week’s letter created more than a little curiosity - can the AI also warn us about the lows? Or is it a perma bear?

It turns out, it can and it did. In the chart above from the Toggle Terminal you can see that it turned “green” right at the bottom as insights across individual equities started to turn from overbought to oversold, from too expensive to … well, a little less so. And the macro picture stabilized.

The sheer volume of data the AI is able to process is, of course, unfathomable for any single human analyst. However, it’s more than sheer computational prowess: the AI has to figure out the investing linkages that matter.

Rising interest rates might be bad for the market - they aren’t, actually unless they tip the economy into a recession - but they’re not bad for every stock. Banks often do well as rates rise and the yield curve “bear steepens”.

A 5% oversold can be a buying opportunity for one stock, and just the start of a much larger correction for another. This requires learning from the past and studying the relationships that reliably hold through a variety of market conditions.

This is where it can make truly valuable contributions to investors. Cloud revolution brought us cheap computing power. The AI has the ability to actually use it on the scale where it matters, and do so intelligently.

Market Movers: Stocks to long & short

Here are the historically best and worst performing US stocks on a 1-month horizon, when the Toggle Leading Indicator has previously crossed above 0.20:

Top 3:

1. ULS:NYSE 10.87%
2. GEV:NYSE 6.95%
3. WING:NASD 3.14%

Bottom 3:

1. KMI:NYSE 0.10%
2. XP:NASD 0.16%
3. FOX:NASD 0.31%

Earnings Spotlight: E-commerce challenges amidst rising cloud growth

Alibaba reported weaker-than-expected earnings for the June quarter of 2024, reflecting ongoing challenges in its core e-commerce business due to increased competition and cautious consumer spending in China.

The company's China e-commerce sales, primarily from its Taobao and Tmall platforms, saw a slight decline of 1% year-over-year, totaling 113.37 billion yuan.

Despite these struggles, investors are closely monitoring Alibaba’s cloud computing division, which is viewed as a key growth area for the future. In a positive sign, the cloud group posted a 6% increase in revenue, reaching 26.5 billion yuan, marking the fastest growth rate since the June quarter of 2022.