The Weekly Systematic Setup July 22, 2025

Welcome to this week's Systematic Setup newsletter.

We'll dive into our bullish stance on equities, track the ongoing rotation between large-cap leaders like the MAG7 and the broader market, and draw parallels to the crypto cycle. We'll also highlight key sectors poised to benefit from the AI boom and warning signs of late-stage frothiness. This week, we're expanding our focus on energy growth and security—a theme we'll emphasize over the next few years as AI-driven demand collides with geopolitical realities and under-invested infrastructure.

Let's get into it.

Market Overview and Positioning

This week, we're maintaining a bullish outlook on equities amid signs of a strengthening bull market in its early phases. The focus remains on high-quality leaders, particularly the MAG7 (Microsoft, Apple, Google, Amazon, Meta, Nvidia, Tesla) and AI infrastructure plays, which are driving the initial surge.

We're closely monitoring the divergence between large caps and mid caps. In a healthy early-stage bull, the MAG7 and similar tech giants should outperform as capital flows into proven winners. Mid caps, representing the "other 493" in the S&P 500, are starting to show rotation but haven't fully caught up yet. This dynamic suggests we're still building a solid foundation rather than peaking.

Comparing the $SPY (S&P 500 Market Cap Weighted Index ETF) to the $RSP (S&P 500 Equal Weighted Index ETF). SPY is in blue, RSP is in white.

Since the April Tariff lows the market cap weighted $SPY continues to outperform the equal weighted $RSP.

Now adding the Nasdaq 100 to it ($QQQ in yellow) , we can see clear leadership in the majors vs the overall market.

I read this as the largest companies in the world, with Billions of dollars in revenues and big 10-30% profit margins, will continue to lead. And there’s not much appetite to go searching for risk elsewhere…yet.

Energy and Nuclear

Essential for powering AI data centers and computational demands.

I wrote about the AI boom is set to drive massive energy investment back in June after the recent Oracle earnings underscoring the scale: Q4 Remaining Performance Obligations up 41% to $138 billion, Cloud Infrastructure Revenue up 52% to $3.0 billion, and multi-cloud database revenue from AWS, Google, and Azure growing 115% quarter-over-quarter. As Larry Ellison noted, "We expect triple-digit MultiCloud revenue growth to continue in FY26." This isn't just tech hype—it's an infrastructure buildout requiring energy on the scale of powering small countries. We're positioning for growth here, especially as energy infrastructure remains massively under-invested after years of neglect.

Rare Earths and Metals: Critical materials for semiconductors and hardware supporting AI growth. Geopolitical tensions amplify opportunities, with China controlling over 80% of rare earth processing—key for wind turbines, solar panels, and more. Silver, in particular, stands out for its industrial demand in solar, EVs, and 5G, often overlooked amid gold's safe-haven focus.

Infrastructure: Broader buildouts in data centers, grids, and logistics to sustain the tech boom.

On energy security specifically, a multi-year theme for me, the geopolitical premium is real and persistent. Recent Middle East conflicts, like Israel's strike on Iran, quickly sent crude oil prices vertical, though we exited since.

Current oil ranges sit at $60-80/barrel, but escalation (e.g., Persian Gulf disruption) could push to $80-100.

Beyond crude, we're exploring broader plays where energy security converges with AI needs, rare earths, and precious metals. Supply chain vulnerabilities and debt-servicing pressures (supporting lower short-term rates) make this a tailwind for sustained growth. Energy security concerns aren’t going away anytime soon, and I see this as a foundational driver for the bull market ahead.

This week is a big week for earnings and I’ll be ripping through the data to see how the big companies are positioning for this.

Warning Signs: When Small Caps Take Over

Continuing with that earlier theme as the bull market matures, watch for shifts toward speculative froth.

When small caps, think the Russell 2000, begin outperforming en masse, with broad rallies across thousands of lesser-known stocks, that's a classic late-stage signal. The market gets bubbly, liquidity chases hype, and corrections often follow.

Currently, the Russell 2000 is in the Neutral market regime (the SQN indicator on the bottom), and this is very normal. When it gets into Bull Quiet or Bull Volatile, that’s when we should start worrying that the end of the trend is near..

We are short the Russell here and are not concerned about the strength of this bull market in the leaders.

This pattern is even more pronounced (and accelerated) in crypto markets:

Bitcoin Leads the Charge: BTC typically kicks off the cycle, pulling everything higher as the risk-on benchmark.

Large-Cap Alts Join In: Once established, Ethereum, Solana, XRP, and similar blue-chip cryptos rotate in, broadening the rally.

Speculative Peak: The real red flag? When unknown scam projects, think meme coins, ICOs, NFTs, and other high-risk assets, dominate. That's when euphoria peaks, and smart money starts exiting.

Right now, we're seeing the first hints of rotation from Bitcoin to Large Cap alts, but nothing extreme. No widespread meme mania yet, this aligns with early-stage dynamics.

And by the way, this rotation in crypto will happen a bunch of times in crypto before the peak.

Weight of the Evidence

Drawing from historical analogs (like past tech booms and crypto cycles), it appears we're in the nascent phases of a longer-term bull market. Momentum is building, but sustainability depends on continued leadership from quality names and AI enablers. If rotations stay orderly, we could see this run extend through the year, potentially finding its natural end toward late 2025.

July historically is a very strong month for S&P 500.

That said, stay vigilant: Frothy small-cap surges or crypto scam proliferation would shift our stance to cautious.

The Crypto Momentum system has kept us out of the major pain in crypto, and in the big runs higher. That remains my strongest strategy going forward. We opened up a few more seats as we head into this next and strongest phase of the crypto bull market.

Final Thoughts and Setups

I’m keeping my eyes open for the Oracle type of earnings call we had back in June, in sectors that aren’t big tech, but are benefitting from the infrastructure buildout. Maybe defense companies talking about it, mining companies, or some other less obvious sector, to connect some dots.

For the week ahead, prioritize positions in MAG7-linked equities, AI infrastructure, and select energy/metals plays with a security lens.

In crypto, watch the rotation from BTC into large-cap alts for rotation upside, and keep your eye on risk going far outside the blue chips.

Your Systematic Operator,
Chris