Daily Brief - Why AI is able to time the market

TLDR: We have been getting a lot of questions from our users about the Toggle Leading Indicator in recent months: specifically, how has it been able to correctly anticipate the gyrations in the market starting with the spring run up and through the summer correction. Does the AI have a crystal ball, at long last?

Not really. It just works harder than anyone (and anything) else. Gone are the days when a lone analyst could fathom the ocean of data the AI can crunch. It's not just about its computational muscles; it's about connecting the dots.

A surprising amount of alpha in the market comes from putting in the hours rather than magic (or super fast trading). But because there are now many, many market analysts willing to make that sacrifice, the bar has understandably risen. Yet even the hardest working analyst has to make some choices: they can’t look at and analyze EVERYTHING. Until AI - and cloud computing - came along, making it suddenly possible to make no such compromises. The Toggle Terminal does actually look at everything.

Take the relationship between interest rates and individual securities. Rising interest rates aren't universally bad news. It also matters whether it’s the back end, or the front end of the yield curve that’s rising the most. Banks, for instance, cheer on as the yield curve gets all "bear steepened" (back end rising faster) because they generally borrow short term and lend long term. But what’s good for banks may be bad for homebuilders: expensive house financing (because 30-yr mortgage yields rocket higher) slows down demand for new construction and they’re stuck with large inventories of land.

Or let’s instead look at the buy-the-dip approach, scanning “biggest mover” screens. An enticing 5% dip might scream "buying spree" for one stock but could signal an impending nosedive for another. Buying NVDA down 10% has been a good strategy. Nikola (NKLA) was a sell even at -20, moving down even faster than its trucks rolling down the hill in the fake demo. Spotting these nuances? It takes a thorough analysis of the individual stock’s price history to make an educated guess about its behavior under pressure.

TL;DR, tools like the Toggle Terminal will endow investors with a new superpower. It won’t complete the entire market puzzle - the machinery is far too complex for that - but it hands us enough pieces that fit to make the rest just a little bit easier.

Market Movers: Sectors response to a bearish TLI

Here are the historically best and worst performing US sectors on 1-month horizon, when the TLI has historically been bearish:

Top 3

1. S&P Energy: 2.81%
2. S&P Financials: 1.47%
3. S&P Real Estate: 1.12%

Bottom 3

1. S&P Consumer Discretionary: -1.79%
2. S&P Utilities: -0.98%
3. S&P Materials: -0.64%

Earnings Spotlight: Oracle reports on Monday

Oracle (ORCL) is set to report its earnings next week, following a strong 2024 performance driven by its cloud business.

Investors are particularly focused on whether Oracle can maintain its growth momentum, especially in its Oracle Cloud Infrastructure (OCI) division. Shares have surged over 30% this year, fueled by OCI's role in the company’s transition from on-premises software to cloud-based services.

Analysts expect Oracle's adjusted earnings for the quarter to rise 12% year-over-year to $1.33 per share, with revenue projected to increase 6.3% to $13.2 billion. A key focus will be OCI's growth rate, which saw a 42% increase last quarter. However, challenges remain, such as building AI-capable data centers to meet rising demand.