Hi YXI friends,

As Elon and Trump’s shouting match escalated on Thursday, the TSLA stock sold off by 14%, the biggest one-day drop on record by market cap.

This was all while the TSLA model remained at “1” (position on”). Is the model plainly “wrong” in not taking the profit? Or does it simply have its own limitations? One must read what I am about to write, before looking at the model signals I share.

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

Our machine learning model employs number of macro drivers and asset specific factors against an asset’s historical price movements. As we have seen in the past 8 weeks, the general market sentiment has been very supportive of risk assets. This was evidenced by the continuous new highs in SPY, QQQ, MSFT, META, NVDA. When one name stalled, another name moved higher.

This risk-on macro sentiment remained intact going into Thursday’s market open, which meant the model favoured holding onto the TSLA position despite its modest pullback prior to Thursday.

And there was one more secret that was spotted by the machine.

TSLA vs IWM, 8 Day Lead (https://www.tradingview.com/x/Kb5Iulpu/)

(Note that this is one of the many patterns that the model spots to arrive at the overall conclusion. Too an extent, I am simplifying the finding here and won’t go into the details of others.)

Tesla has been following the directional moves in IWM, with an 8-day lag, i.e. IWM has led TSLA by 8 days. The relationship held well before Elon’s explosive posts on X on Thursday.

As IWM has been moving higher since May 23, the model expected TSLA’s pullback to be only temporary. What the machine did not and could expect, was an implosive feud between Trump and Musk that may have reached a point of no return. And that is the machine’s limitation.

Now, I will tell you that today’s TSLA Signal remains at 1 - position on - without knowing the market impact of Nonfarm Payrolls at 8:30 ET or how Trump and Musk could resolve their differences (if even possible).

What should one make of this information?

One may think TSLA has become “too political” and “erratic” and therefore the effectiveness of quantitative and technical analyses is capped. In that case, there is no need to even consider the stock in one’s universe. One could also simply decide that this is just usual market yoyo, which is great for trading the stock on both sides using the available analytical tools.

I cannot make any financial or investment advice. Each person must decide on their own what’s best for their given the information they have.

Finally, time for our performance table since launch. It is published every Friday.

We currently offer SPY, QQQ, BTC, TLT, AAPL, AMZN, GOOGL, META, MSFT, NVDA, TSLA, and PLTR daily systematic signals through machine learning in this service. We combine these signals with our other methodologies in the full daily macro note for in-depth analysis.

I plan to keep TSLA and PLTR free for everyone, everyday. Please share the newsletter with friends and colleagues who may find it helpful for reference.

Premium subscribers can enjoy daily access to SPY, QQQ, BTC, TLT, AAPL, AMZN, GOOGL, META, MSFT, and NVDA signals. If you haven’t already, subscribe now to lock in the current price forever.

How The Model Works

We employ proprietary machine learning models for each asset to maximise the Sharpe ratio and minimise the drawdowns when trading the name. The model achieves this by examining a number of macro drivers and asset specific factors against the asset’s historical price movements. It is a long-only strategy without leverage.

In interpreting the signal, 1 occurs when the model prefers being “position on” and 0 when preferring “cash”. There is no “minimum” holding period when the signal shows 1. The model strategy simply holds the asset until the signal turns to 0. This could be after 1 day, 1 week, or longer.

The unique strength of our offering is the combination of the independent cross-asset signals everyday, to clearly illustrate the market sentiment.

The model will NOT be 100% correct in its market prediction everyday (no model can be - please run away if someone claims this). Each model is being improved over time, so the below success rates and back-test results are subject to change. Currently, the model returns are calculated using the daily closes versus the previous day. The model outputs are not financial advice and there is no guarantee of future performance.

1. TSLA

The YXI TSLA Signal

(These results are based on historical data and may not predict future performance.)

Strategy Sharpe Ratio: 1.70

Strategy Maximum Drawdown: -33.74%

Buy & Hold Sharpe Ratio: 0.78

Buy & Hold Maximum Drawdown: -73.63%

Note the y-axis below is in log scale to offer a clearer comparison between the two strategies.

2. PLTR

The YXI PLTR Signal

(These results are based on historical data and may not predict future performance.)

Strategy Sharpe Ratio: 1.88

Strategy Maximum Drawdown: -40.61%

Buy & Hold Sharpe Ratio: 0.91

Buy & Hold Maximum Drawdown: -79.14%

Note the y-axis below is in log scale to offer a clearer comparison between the two strategies

2.5 Summary Of Today’s YXI Signals

SPY, QQQ, BTC, TLT, AAPL, AMZN, MSFT, META, NVDA, TSLA, PLTR

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