Fake Signals Pt. I

The small print: this newsletter is mostly stories, pop-psychology, and half-baked trading ideas. This is NOT financial advice. Best to think of this as a community of like-minded gamblers. If you are having a punt, make sure you restrict your trade size to whatever change you can find down the back of the couch.

In Japan in the 90s, thousands of people joined a Doomsday cult.

It was called Aum Shinrikyo.

They thought the world was ending.

They even knew the date: July 1999.

The cult did some pretty bad things in the name of doomsday - they manufactured nerve gas, built secret weapons factories, and even attacked the Tokyo subway in 1995. Killing 13 people.

But why was Aum Shinrikyo so convinced the world was ending? And why July 1999?

Well, mostly because of Nostradamus.

See, way back in the 1500s, Nostradamus wrote some vague prophecies. They were nonsense of course. Complete gibberish.

But people have trawled through them ever since - matching old words to new events. Finding patterns that weren’t there. Claiming his “predictions” had come true…

Aum Shinrikyo got caught in this trap:

Nostradamus said a “King of Terror” would come from the skies in 1999. And the cult really bought in.

But 1999 came and went. No apocalypse.

At first, it seems ridiculous that people do this - fool themselves into seeing patterns that aren’t there…

But then you realise traders do this all the time.

Open a price chart and we’ll show you what we mean…

Apophenia is our tendency to see meaningful patterns in random or meaningless information.

Shapes in clouds. Doomsday prophecies in old texts. That kind of thing.

We’re pattern recognition machines. Which was really useful for most of history. Now though… not so much.

Especially when we’re trading…

Because markets are complicated. And there’s infinite information out there.

So it’s very easy to consume too many data points and convince yourself you’ve found a tradeable pattern.

The Bitcoin chart is the ultimate example.

I mean, just look at this thing:

The four year cycle. Boom, crash, repeat.

The caveman brain loves this price action - the pattern jumps off the chart.

But what exactly are we looking at?

Maybe BTC syncs to liquidity cycles? Or maybe it’s the halvings? Or it could be purely sentiment-driven…

Point is, we don’t really know. But our brains are hardwired to see the pattern. And then we trade, assuming that “pattern” will hold.

That’s how apophenia hurts your portfolio.

And once you see something that looks like a pattern, it’s very hard to unsee it.

Which brings us to the Trade…

Things right now are somehow very bullish and also deeply unstable.

Indices continue to trade around ATHs - seemingly immune not only to headlines, but actual market events.

Cracks are appearing in the AI foundations, just as SK Hynix ADRs are about to debut on Nasdaq. The $28 billion offering is already oversubscribed. But on Friday we’ll find out how it actually trades.

As for us, we’re about to say the words we’ve been warning against for the last 20 paragraphs…

We think we’ve found a pattern…

The Hype Market

Remember when NVIDIA hosted Quantum Day? And quantum stocks spiked going into the event?

And the SpaceX IPO. When Redwire jumped from $9 to $25 in a matter of weeks? (we pitched RDW back in March).

Well, we think robotics could be next…

This is our pattern. Our shape in the clouds.

Hesai Group (NASDAQ: HSAI)

Unitree - the Chinese company with the robot-dogs - has just won approval for a Shanghai STAR Market IPO.

So, we went proxy hunting.

And we found Hesai.

Hesai makes lidar sensors. It does other stuff too, but don’t worry about that, because as always, our thesis is embarrassingly simple:

If the Unitree IPO builds enough hype, then investors will look for adjacent names to bet on.

And maybe Hesai will be one of them.

I’m buying: HSAI outright

If it works, think of us as the Nostradamus of the stock market.

Although the only thing we can predict with absolute certainty is that half our trades are going to zero.

There’s psychological traps everywhere in life. They shape how we think, how we make decisions, and spend money.

But no more big words - let’s gamify this:

💲💲Let’s say you’ve come into some unexpected money, and now you’re feeling reckless.

A friend tells you about their new trading strategy, based entirely on lunar cycles.

They pitch you their latest trade - because full moon’s next week.

The answer - and the psychology behind it - will be revealed in the next edition.

Last Week’s Answer:

Bitcoin at $60k - did you buy in? The chart seems too easy, right? The 4-year cycles - seems like the most obvious “pattern” in trading. And hey, maybe BTC goes vertical from here. Or maybe it’s just apophenia.