WHIPLASH IS KING
04/12/26 Prospero.ai Investing - 309th Edition (Weekend)
Here’s the main takeaway from today’s letter: When the smartest people in the room admit they’re guessing, the best move is to stop pretending you’re not.
When I started writing this letter, U.S. Naval ships were opening up the Strait of Hormuz and Vice President JD Vance was on the way to negotiate peace with the leaders of Iran. Both very bullish events. But that was yesterday. By the time I’d grabbed my computer to finish it a day later, negotiations had stalled and it looked like the war might be back on. That’s a PERFECT example of what we’re trying to get across today. This market is next to impossible to predict.
I personally had this epiphany a few days ago when I was scrolling on X and a veteran trader with almost 30 years of Wall Street experience posted that he’d recently spoken with dozens of experienced traders. Hedge fund guys. Quants. Wall Street veterans. People who have been doing this a long time; and every single one of them told him the same thing: “We don’t have a clue what’s happening on a day-to-day basis in this market. It’s just too hard to predict.” And that tracks with everything we’re seeing at Prospero.ai. There’s no trend to trade. As I was having this epiphany, our CEO was coming to the same conclusion. Here’s a direct quote from George, on our call to discuss the letter (we record it) He said: “In past volatile stretches, tariff announcements, Fed pivots, even the early days of this administration’s trade policy; there was at least a pattern. An announcement would drop, the market would move directionally for a few days, maybe a week and you could position around it. But this Iran situation is something different entirely. A ceasefire is announced. The next day it’s blown up. The market rallies on no discernible logic while the geopolitical situation actively escalates. CPI prints barely register. There is no rhyme or reason, and there is no reliable timeline. Worse, we’re watching billion-dollar oil bets get placed right before major announcements. Unless you’ve got access to that kind of information pipeline, you’re on the outside of these swings. Period.” And guess what? My man is dead right.
WHAT OUR SIGNALS ARE TELLING US
Our signals are built on the thesis that informed market participants, people with real knowledge, leave footprints in the options flow. For years now, that thesis has been remarkably reliable. But right now, even those footprints are erratic and it reveals something really interesting. Wall Street isn’t able to reliably predict the direction of the market.
One case in point would be one of our positions last week, TPL (Texas Pacific Land Co) The Net Options Sentiment has been jumping from bullish to bearish and back again in a way that makes it almost impossible to trade. By yesterday’s close, net option sentiment had deteriorated significantly, and upside scores had dropped hard. We did the disciplined thing and closed the position. The next morning, with zero headlines, no catalyst, nothing, our numbers swung 17 points higher from close to open. That’s not normal. That’s a market where even the people who usually know something are getting whipsawed.
Here’s one more example. On Thursday and Friday, for the first time in 4½ months, SPY Net Options Sentiment jumped from 0 into the teens. Team, that is HUGE. We were excited. It meant that big money was beginning to pull hedges off and dip their toes back into a risk-on posture. The Net Options scores for SPY weren’t’ super bullish (40’s), but they were far from bearish. Why? They jumped from 0 to 20. That is a big move in sentiment. And when institutional players start removing downside protection, it’s often the earliest signal that sentiment is shifting. Guess what? Pretty much everyone went into the weekend bullish. Why? Peace was coming and big money was removing hedges. But by the writing of this letter just a short weekend later, EVERYTHING has changed (and might change even again by the time you read this).
Bottom line: If the big boys are getting chewed up. Solid chance you will too. So the best move in an environment like this is to increase your cash position and wait until a real trend emerges. We’re scaling down to our highest-conviction ideas only — 2 longs and 3 shorts. Maybe a couple more if something becomes really obvious, but that’s it. In a market where the permutations are genuinely impossible to model, reducing exposure isn’t timidity. It’s discipline. It’s wisdom. And we are going to stay that way until a genuine trend emerges. We know a lot of really good traders, people with 20, 30 years of experience, who are doing the exact same thing right now. Sitting on their hands, taking one or two shots, and waiting. That’s the playbook until this environment gives us something we can actually work with.
Let me end this letter with something I’m personally a bit concerned about. It hit me the other day that this market was turning over and heading south BEFORE the war kicked off and oil (the best driver of inflation) flew to expensive levels. So even if the war ends tomorrow, the underlying market sentiment is shaky at best and was long before this war started.
Stay sharp. Trade small. And don’t let anyone — us included — pretend they have this figured out.
— The Prospero Team
A WORD FROM OUR CEO
We are not only shrinking the portfolio, but we are also going to resist playing the swings due to the whiplash. We have overplayed both the upside and downside recently when the tides appeared to be turning strongly. We won't be doing that again until we see something much more concrete. Our paper trading portfolio is 3% above the market on an annualized basis, with a 53% win rate against SPY benchmarks.
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WHIPLASH IS KING
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 / VALUE ANALYSIS
Growth, like we noticed mid week, got the largest relief from the market rebound this week but would not be surprised as tensions remain and escalate that this reverses course and we see investors flock again to value stocks.
Sentiment in Tech overall remains tepid to say the least. As we see above XLK NOS has bounced around quite a bit in recent days and it would be prudent to wait and see where it opens up on Monday.
XLI NOS in a better spot after the market rebound on Wednesday but wouldn’t be surprised if it went back down as inflationary fears around the new blockade of the Strait of Hormuz come back into fray.
SECTOR ANALYSIS
Technology has returned back to life after a couple months of intense pressure in certain parts of the sector. Wouldn’t be surprised if this little rally continues as valuations are now a lot more reasonable. Industrials and Consumer Discretionary got the most relief but wouldn’t be too bullish going forward as inflation fears creep back in as the conflict remains unresolved. The trade might become long Energy again and short most other sectors.
PORTFOLIO STRATEGY
Even with both XLK and XLI NOS improving from last week we simply do not trust the upside or downside right now. But think overall, until this is resolved in a concrete way we will protect the downside. We’re heading into Monday’s open with a more cautious posture, paring back position sizes while maintaining a net‑short stance. 2 Longs, 3 Shorts.
Long / Bull Moves – Add MSFT / META hold / GS and CRWD drops
Adds
MSFT is making a nice move up in the signals and we are just more comfortable with it being close to its bottom so it feels like a safer pick if we see more war risk.
Holds
META was an easy keep at the top of our screener this week again with perfect NOS.
Drops
GS was dropped as NOS was too low. CRWD was dropped as it performed poorly in our screener.
Short / Bear Moves – WERN and MSI adds / INFY hold / F, DB, UPWK and CDW drops
Adds
WERN was added as it came in at the top of our screener with low NOS. MSI was needed for Large Cap Tech exposure with favorable NOS and Momentum.
Holds
INFY was kept for Large Cap Tech exposure with great Downside Breakout and poor earnings power.
Drops
F, DB, UPWK and CDW were all dropped this week as they were screened out.
Portfolio Summary
Long / Bull Moves – MSFT add / META hold / GS and CRWD drops
Short / Bear Moves – WERN and MSI adds / INFY hold / F, DB, UPWK and CDW drops
2 Longs: META and MSFT
3 Shorts: WERN, MSI and INFY
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