29 May — Blue Sky Melt Up, Software Breakout, Bitcoin's Cycle

This is a blue sky breakout. ​
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We have cleared the long-term trend lines, and there is no overhead resistance left on the chart to lean on. But the same move that feels unstoppable is also the most fragile setup we have tracked all year.
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The leadership is razor thin, the gains are concentrated in semiconductors, and the VIX is sitting near 16-17, one of the lowest levels seen during the war advent.

When volatility is this cheap, almost no protection is being bought, and the air pockets underneath the market get deeper.

The question this week is not whether the rally can keep running. It clearly can. The question is what happens to a market priced for perfection the moment a single assumption (oil, the Fed, AI ROI) cracks.

Insights from Macro Call

This week's call was a study in discipline over momentum. Raman walked through why this is one of the most dangerous markets to invest in fundamentally, even as it keeps making new highs.

A few ideas stood out:

• Blue sky, thin floor.
  We have broken out into open air, but the VIX near record lows means almost no insurance is being written. Confidence is at the level where investors believe nothing can go wrong, which is precisely when drops turn violent.
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• Where is the value?
  The semiconductor ETF (SOXX) is up roughly 89% year to date on a near-vertical curve. The irony: NVIDIA, which actually delivered close to 90% earnings growth, trades on a reasonable ~24x forward and has corrected on results, while second-tier names ride triple-digit forward multiples on pure hope. Being right on the fundamentals no longer guarantees a return.
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• The old-timers are winning.
  The interesting money is in the second-level trade. Dell's blowout (+234% year to date, up nearly 33% in a single session on May 29) shows experienced operators who own the ecosystem are taking the AI opportunity, not just the obvious names. ​

You can watch the complete recording here: ​

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Key Drivers This Week

The Blue Sky Melt Up: Narrow, Parabolic, Priced for Perfection

We have broken out of the long-term trend and into a zone with no resistance overhead. That is the good news.
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​The problem is breadth. ​
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The contribution is coming from a handful of semiconductor names and their second-tier peers, with the semiconductor ETF (SOXX) up roughly 80% year to date and tracing a near-vertical curve.

The valuation split is where it gets uncomfortable. NVIDIA, the genuine cash machine that printed close to 90% earnings growth, trades on a sober ~16x forward and actually corrected on its results.

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Meanwhile the second-tier and "story" semis carry triple-digit forward multiples on five-year-out earnings that may never arrive. The market is rewarding hope over delivered numbers, and that is the opposite of how durable rallies are built.

Software's Quiet Comeback

For six months the story was simple: AI eats software, and the IGV software index put in its weakest start since 2008.
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That trade is now being questioned. IGV has clawed back (a +14% week during the April turn) and is pushing higher, led by Oracle, Microsoft, and the names left for dead.

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Dell is the poster child: AI server revenue surged 757% year over year to $16.1B, helped by a $9.7B government contract, and the stock has gone vertical.

The reason is the AI ROI reckoning.
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An MIT study found 95% of enterprise generative-AI pilots returned no measurable ROI, and Gartner expects over 40% of agentic-AI projects to be cancelled by 2027.
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After a year of "token maxing," budgets are blowing past plan, especially once you remember today's token prices are subsidized by Anthropic and OpenAI.
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Two responses are emerging: Meta's path of cutting 8,000 jobs while redeploying 7,000 into AI, or Microsoft's path of shipping three in-house models at roughly half the GPU cost to lean off expensive APIs.
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Either way, the incumbents own the ecosystem and can fold AI into their own stack faster than a startup can replicate it.

Oil, Yields, and the Rate-Cut Vacuum

Oil is finally cooling off the war premium. Brent is back near $96 and WTI near $93, down from the $120+ Dubai-crude spike in March.
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The line in the sand is $80 Brent: below it, the inflation picture eases and the market gets materially better support.
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The oil-to-inflation link is direct, and April PCE at 3.8% is the proof.

That hot inflation is why the rate-cut hope has evaporated. Markets now price essentially zero cuts through year-end (a ~51% probability of no cut at all), against the two cuts expected earlier in the year.
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Kevin Warsh was confirmed Fed Chair on May 13 in a 54-45 vote and leans toward easing, but inflation has him boxed in ahead of his first meeting on June 16-17.
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Yields remain elevated: the 10-year near 4.5%, the 30-year above 5%. We want to see the 10-year mean-revert toward 4.2% before calling the macro genuinely supportive. Until then, this is a correction in yields, not a trend, and the path runs through oil.

Bitcoin's Four-Year Cycle and Gold's Euphoric Reset

Bitcoin is the clearest casualty of the AI euphoria. It has been rejected at its 200-day on a weekly basis and slid to roughly $72,000, off about 43% from the ~$126,000 October peak, with thin support and a path that could test $68,000 and the long-term trend line.
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This is textbook cycle behavior, and the supply-and-demand math is real.

The supply side is heavy.
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Long-term holder supply just hit a record 16.3M BTC (up roughly 200,000 in a month), which sounds bullish until you see CryptoQuant's read: a buyer drought, weak turnover, and no fresh demand to absorb it.

Miners are adding to the pressure, transitioning data centers from mining to AI and funding the pivot: IREN's $9.7B Microsoft deal, Core Scientific's $10B CoreWeave deal, Hut 8's $7B Fluidstack lease, with some miners on track to earn 70% of revenue from AI hosting by year-end.
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Demand from ETFs and treasuries (Strategy now holds 818,334 BTC) continues, but it is absorbing the selling, not overwhelming it. The next halving is April 2028, and the cycle low has historically formed 12 to 18 months ahead of it.

Gold tells the other half of the story.

We called the top after its euphoric run back in January and February, and it has corrected hard since (a drawdown near 27%), even though the Iran war was fundamentally bullish for it.
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The lesson: a euphoric move corrects regardless of good fundamentals. Gold is now near $4,500, holding its 200-day around $4,357 with a bullish reversal signal, and silver has ripped to ~$76 (up over 115% year over year).
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The structural case is intact, and de-dollarization only strengthens as globalization retreats.

🔍 What We’re Watching

• The June 5 jobs report and Warsh's first FOMC on June 16-17, where the dot plot tells us how many cuts, if any, survive the hot inflation.
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• Triple witching on June 18, where the record gamma we flagged gets its quarterly stress test.
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• Brent below $80 as the signal that the inflation and yield picture is genuinely easing, and the 10-year toward 4.2%.
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• Bitcoin's $68,000 to $70,000 support holding versus a flush toward the trend line.
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• SpaceX's mid-June pricing as the live read on whether the AI-IPO appetite is still intact.

🧭 Proflex Playbook – Discipline in an Stretched Rally​
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​With corporate earnings, War in Intermediation & Insitutional Reversal, we see the market to absorb signification shocks. But the speed of this move demands respect, not complacency.
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Our conviction stays anchored in the data:

• Focus on Structural Growth: Continue to overweight the secular AI theme, recognizing its multi-year runway.
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• Anticipate Shallow Corrections: Use dips as accumulation opportunities, not reasons for fear, understanding that "none of the corrections stick."
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• Diversify Thoughtfully: Recognize the "decorrelation" across asset classes; consider gold, silver and Bitcoin for portfolio resilience.
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• Develop Mental Models: Prioritize long-term planning (6-12 months out) over short-term news, aiming for consistent, incremental gains.

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If you're an All-Access or Managed Portfolio subscriber, our positioning has already shifted ahead of this moment—scaling up asymmetric hard asset plays while hedging for earnings volatility and geopolitical tail risks.

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Until next week,
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— The Proflex Team
​ Trusted Macro Insights. Calm Investing. Tactical Trades.