Episode summary
Extreme Tech Sentiment: Put Buying Spike Points to XLK Rally
ETF Spotlight
· · Hosts: Jeffrey Sherman, Bill Sokol, Daniel Snyder · Guests: Michael James McDonald
Summary
Michael James McDonald argues that extreme directional put buying in technology is a contrarian bullish signal, not a warning that the AI trade is about to collapse. He says the CBOE’s newer breakdown of directional puts lets him measure how much money is betting on declines, and that the current surge in bearish positioning across QQQ, XLK, and the broader technology universe is unusually large for a market still near highs.
He walks through three charts: QQQ as a proxy for tech-heavy market sentiment, the XLK sector ETF, and a broader basket of 661 technology stocks. In each case, he says put buying is at or above prior extremes from the 2022 bear-market low and the April selloff, while prices have not broken down. In his view, that combination implies investors are crowded into the same bearish trade before a consolidation and another leg higher.
McDonald says he averages data over 20 days because options are inherently short term, turning the signal into an intermediate-term indicator. His call is that technology could lead another advancing wave into next summer, even though he acknowledges many investors think valuations are stretched.
Key takeaways
- McDonald says record directional put buying in tech is a contrarian bullish indicator because crowded bearish bets often appear before a further advance.
- He says QQQ, XLK, and a 661-stock technology basket all show put buying near or above April and 2022 extremes while prices remain elevated.
- He uses 20-day averages to convert option flow into an intermediate-term timing signal rather than a daily trading cue.
- McDonald expects technology to lead another advancing wave over roughly six months, potentially into next summer.
- He argues valuations are poor timing tools compared with psychology and sentiment when markets are in bubble-like conditions.
Notable quotes
“There's so much talk about an AI bubble that investors are convinced that it's true”
“the amount of directional put buying is astronomical, and yet the market hasn't gone down”
“This is very bullish. We think it represents a consolidation prior to another move higher”
“we think this market's going to continue up, especially in the technology sector, into next summer”
“So, we don't take daily numbers. We average the numbers over 20 days”
How the episode opens
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Seeking Alpha is not a licensed securities dealer, broker, US investment adviser, or investment bank. Hey, everyone. Welcome back to ETF Spotlight.
Today, we have, I'm going to call him, a legend. He's been in this space for so long. He has quite the track record.
And today we are talking about tech and AI. And you may not have heard of him, so we're bringing him here to the forefront today. So, I want to go ahead and ask Michael McDonald to join us here in conversation.
Now, Michael, as I mentioned, you've been in the… I like Daniel. …industry for quite some time. I know, I've seen here on Seeking Alpha, you've at least been within the contributor space since 2010.
You've ran around the block here. You used to be the VP of Investments, which you say is now, Morgan Stanley. I want to ask you about that.
Can you give us a little bit of, brief background of your history to how you've gotten to where you are today? Well, yes. I started studying the stock market back in the 1970s, and eventually became a stock broker, registered rep with a major company, actually Dean Witter and focused on the retirement area.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- extreme tech sentiment
- put buying
- market timing
- theory of contrary opinion
- xlk rally
Companies and tickers mentioned
- Seeking Alpha
Watch the episode
Watch “Extreme Tech Sentiment: Put Buying Spike Points to XLK Rally” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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