THAT WAS THEN, THIS IS NOW
05/26/25 Prospero.ai Investing - 223rd Edition (Weekend)
Hey Prospero family! Let's do something a little different today and take a trip back in time. Specifically America circa 1972. It was a time that's not so different from the one we live in, so let's see what we can learn from that volatile time in our not-so-distant past.
In 1972, despite being in a war with Vietnam, the United States of America was in pretty decent shape. In January, the Dallas Cowboys beat the Miami Dolphins 24-3, winning their first ever Super Bowl. In the world of politics, Richard Nixon was still in his first term as president and made two strategic moves that helped stabilize foreign relations and ease building tensions from the Cold War. First, he took a trip to China, becoming the very first American President to do so. Second, Nixon and Soviet leader Leonid Brezhnev signed the Strategic Arms Limitation Treaty. This treaty served as the first significant step toward easing nuclear tensions between the two superpowers. In November of '72, the economy was on solid footing and the stock market rallied all the way into Nixon's historic landslide re-election victory, where he'd win 49 of 50 states. The country was unified and times were good! Euphoria gripped the markets. People were making money hand over fist and the S&P 500 finished the year up a whopping +18%!
But little did the average American know that storm clouds were gathering.
As the calendar year turned to 1973, a series of political and economic left hooks pummeled the country. An OPEC oil embargo led to skyrocketing energy prices and massive inflation. In March of '73, the U.S. shifted monetary policy away from the Gold standard. And if that weren't enough to upset the apple cart, the Watergate Scandal broke and the Vietnam War turned really ugly for the U.S. The result? The country became radically divided, interest rates climbed and the economy turned south. As you could expect, the stock market cratered and entered into a prolonged and historic bear market, where the S&P 500 would lose greater than 50% of its total value. It was a sad and dark time for our country; and it would take over a decade to fully recover from the chaos.
Why am I sharing with you a historical breakdown of the early 70's? There's actually a method to my madness. I (Matt) was born in the fall of '73, so I don't remember any of those events; but a couple of months ago, I had the opportunity to spend some time with a much older, retired, Private Wealth Manager. As we talked, I had the opportunity to explain to him what we were doing at Prospero.ai and how our signals worked. I walked him through our Net Options Sentiment and how it can show us in real-time whether Institutions are bullish or bearish. I then showed him a few examples of how accurate SPY and QQQ Net Options has been at predicting FUTURE market movements.
For example, I showed him how our Net Options Sentiment came EXTREMELY close to calling the top of the market in February of this year. Let me prove it to you. On Friday, February 21st of this year, the S&P 500 was hovering near all time highs. At that point, we'd been on a prolonged 2+ year bull run, and it felt like it'd been a generation since we'd experienced a market correction. The market had spent the previous couple of weeks trading in a straight line and everyone was expecting the next leg up. But on Friday morning Feb 21st, around 9:30 AM, our QQQ Net Options Sentiment suddenly turned bearish. We immediately alerted our followers on X…
SOS Our QQQ Net Options Sentiment has just taken a dramatic turn for the worse. (41 to 18). We will be watching if this is a short term dip, or a sign of something more ominous. SOS
Turns out it was something more ominous. About 20 minutes later, our SPY Net Options Sentiment declined to single digits. We sent another alert on X. By the end of the day, QQQ Net Options dropped to 3 and SPY Net Options was at 0! That completely freaked us out, because it was the lowest combined QQQ and SPY Net Options Score in the history of our company! The following Sunday afternoon Feb 23rd, we released our Investing Newsletter and the first line of the letter read: "We're officially Bearish". In the letter we explained how we were deeply concerned about a major market correction. Our CEO George Kailas shifted our portfolio to heavy shorts and then later on that Sunday evening, Feb 23rd something interesting happened. The market futures opened green. All of social media was cheering for another leg up, but at 8:04 p.m. we sent out this warning on X….
The market began to drop in earnest on Feb 24th, and from then until April 6th, we experienced a historic, almost 20% decline in the S&P. The old guy was blown away! From there, I showed him the alert we sent out on March 26th and warned our followers BEFORE the next major leg down. Finally I showed him how on April 23, when people were still reeling from the drop, we sent out an alert, that Net Options Scores finished the day bullish for the first time in a long time; and how that began the historic return to almost all time highs. Again, he was FLOORED.
What he said next is why I wrote this letter. He looked at me, shaking his head and said something to the effect of: "Can you imagine if I would have had access to Proserpo back in 1973? Or before 1987's Black Monday? Or the Dot Com collapse? I would have made a lot of people a lot of money and I could have retired a lot sooner!". I asked him what he would have been willing to pay for that kind of data. He said: "A LOT!" I finished our conversation by telling him that people can get the app for free. I think THAT shocked him the most.
Looking back at that conversation, I can't help but smile and be a little amazed; because you and I are truly living in remarkable times. We have access to information that previous generations would have killed for.
I'd be remiss to not show you one more example of how our Signals have helped us have an UNBELIEVABLE 2025. Let me give you some quick examples of how our signals gave us access to crazy market moves before they happened.
1. Last week, our newest signal - Momentum Score flagged $WOLF with its lowest score ever and we went short heavily in our trading and investing portfolio a few days before they entered bankruptcy sending their stock tumbling an unbelievable 56%.
2. Last week on Wednesday, May 21st at 9AM, we sent out an alert on X that stated: "ALERT: SPY Net Options Sentiment just dropped to 0 for the first time since the S&P 500's historic drop earlier in the year. If it stays at 0, that's historically been a foreshadowing of a major correction!"
At around 1 PM EST that same day, the market started to drop!!
Once again, our signals saw it coming and warned us in advance. Prospero family, these signals keep getting better and more accurate every day! What's crazy is that it's just the beginning. Don't miss the opportunity to join on this incredible journey with us!
An important note - QQQ Net Options Sentiment ended the week at 12 and SPY at 0. This is definitely bearish but we first saw these signals decline in advance of the escalation with the EU on tariffs. The deadline for the 50% tariff got pushed back this weekend. So the market could open up stronger as a result. Definitely worth checking out QQQ/SPY Net Options Sentiment to start the day tomorrow before any big portfolio moves.
A WORD FROM OUR CEO
We had one of our best weeks ever. The clarity of our predictions made forming the strategy an easy task. This is the entire goal of our system for us and you. Our paper trading portfolio finished the week 123% above the market annualized with a win rate of 61% against SPY benchmarks.
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THAT WAS THEN, THIS IS NOW
Market/Macro Update w/ Cap/ Value Analysis
QQQ and SPY Net Options Sentiment
Sector Analysis
How we view the Sector performance and momentum
Portfolio Strategy
Putting it all together to make a portfolio that first controls for risks but also has upside
Longs
Adds —> Keeps —> Drops
Shorts
Adds —> Keeps —> Drops
Portfolio Summary
CAP/ ANALYSIS
It’s been a tough week across all style categories, but looking at the bigger picture, growth continues to outperform—especially in large-cap stocks with strong earnings power. These remain solid long-term holdings in our portfolio. While value stocks may show more resilience in a downturn, we’ll consider increasing our allocation to that style category if the decline persists.
SECTOR ANALYSIS
Defensive sectors were the clear winners this week, with Consumer Defensive leading the charge. Utilities also held up well, supported by the AI trend and steady defensive earnings. Meanwhile, growth-oriented sectors like Tech and Consumer Discretionary could face headwinds if tariff threats linger. However, rather than speculate on their duration or potential volatility, we’ll focus on adapting as the situation unfolds.
SPY/QQQ NET OPTIONS SENTIMENT
SPY NOS has stalled following Friday’s tariff threat, which failed to spark any optimism about the broader macro outlook—especially with rising yields across the board. We see it in the dreaded “zero flatline” historically a strong sign of a Bear run ahead. As it showed us in February of this year. Given this shifting landscape, we’ll adjust our portfolio accordingly, monitoring whether this downturn is a lasting trend or just another temporary anomaly.
QQQ NOS started relatively bullish but then turned bearish along with SPY although slightly more optimistic about tech’s future than that of the broader market.
PORTFOLIO STRATEGY
With both QQQ and SPY NOS falling below the bear line and broader market momentum turning negative after last week's macro upheaval, we're adjusting our portfolio to align with the shifting landscape. Our focus will be on enhancing sector and market cap diversification while strategically going net short to capitalize on the prevailing downward momentum. 4 longs, 7 shorts.
Long / Bull Moves
Long / Bull Moves - GOOGL, KNSL and LLY adds / NVDA and GME holds / META drop
Adds
GOOGL presented itself as a well-rounded addition, boasting strong Momentum, solid Net Options Sentiment, and impressive earnings power. Meanwhile, LLY was a standout pick, with near-perfect Net Options metrics, strong Momentum, and the added benefit of enhancing our Healthcare sector exposure. KNSL was added to diversify sector and cap.
Holds
NVDA was kept for its well rounded profile with great Net Options and good Tech Flow. GME remains for its smaller market cap, and excellent Tech Flow and Net Options.
Drops
META was dropped as it didn’t have amazing Net Options Sentiment ot Momentum Score and despite its higher Screener rank than GOOGL. We felt the news cycle was more on the side of GOOGL so we wanted to take that chance.
Short / Bear Moves
Short / Bear Moves - USM, ARES, SABR, CNMD, ST, IR and NXPI adds / RHI, GRMN, SWKS, RGEN and UGI drops
Adds
USM was added as the runner up in our screener, with favorable Net Options Sentiment. ARES was added for its larger market cap and low Net Options. SABR was added for Consumer Cyclical exposure and poor earnings power. CNMD was needed for a Healtchare exposure hedge. ST was added for small cap Tech exposure. IR was a good large cap add with bad earnings power. Lastly, NXPI was added for large cap Tech exposure with low Net Options.
Drops
RHI was dropped as we liked IR more. GRMN, SWKS RGEN and UGI were all dropped as they were screener out this time around.
Portfolio Summary
Long / Bull Moves - GOOGL, KNSL and LLY adds / NVDA and GME holds / META drop
Short / Bear Moves - USM, ARES, SABR, CNMD, ST, IR and NXPI adds / RHI, GRMN, SWKS, RGEN and UGI drops
5 Longs: GOOGL, LLY, KNSL, NVDA and GME
7 Shorts: USM, ARES, SABR, CNMD, ST, IR and NXPI
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