While not California specific, a first-of-its-kind ruling in federal court establishes that a client’s use of AI-generated chat content is not protected by an attorney-client privilege or work product doctrine. You can find a summary of the case, United States v. Heppner, a criminal securities fraud case, here. This is important because HR professionals, business owners and employees themselves are utilizing AI to research and respond to employment-related disputes in increasing numbers. Under the ruling, any factual or strategic information would be discoverable and can be used by the opposing party in subsequent litigation.

In it’s reasoning, the court opined that establishing privilege requires confidential communication between a client and licensed attorney. Further, it established clients have no reasonable expectation of privacy in their conversations with a chatbot, especially since the terms of an AI platform generally specifically disavow giving legal advice and reserve rights to collect, retain and disclose user input/output.

Accordingly, a few tips to minimize risk of deterimental AI data being used against you in future litiagtion:

1. Call a lawyer first. Before going down an AI rabbit-hole of facts and potential admissions, seek counsel,
2. Avoid putting confidential facts or legal strategy into public AI tools; and
3. Do not assume sharing an AI conversation with counsel can protect the privilege.

BRUTAL REVERSAL – 70% RED DISTRIBUTION

MORNING MARKET COMMENTARY

BRUTAL REVERSAL – 70% RED DISTRIBUTION

Thursday, February 19, 2026 – BEAR MARKET RALLY DEAD

Timothy McCandless – Protected Wheel Strategy

RALLY OVER: Wednesday 80% GREEN turned into Thursday 70% RED. Fed threatened RATE HIKES (not cuts). Walmart weak guidance killed value rotation. MU -1.45%, WDC -3.66%, market down 0.6-0.9%. If you executed Wednesday, EXIT NOW. Lock in profits before they evaporate. This was a one-day bear market rally.

SECTION 1: WHAT HAPPENED – THE REVERSAL

Wednesday Night to Thursday Morning

• Wednesday Close: Markets up, tech bouncing, VIX -7.78% to 19.55
• Your Wednesday Scan: 80% GREEN (16 of 20) = EXECUTE signal
• Overnight: Walmart earnings disappoint, Fed minutes hawkish
• Thursday Open: Markets gap down, VIX back above 20

Thursday Market Action – The Damage

• Dow Jones: -426 points (-0.9%)
• S&P 500: -0.6%
• Nasdaq: -0.7%
• VIX: Back above 20 (was 19.55 Wednesday)
• Oil: Surged to $66/barrel on Iran tensions

THE REVERSAL: Wednesday rally lasted ONE TRADING DAY. Market tried to bounce off Tuesday distribution, but Fed hawkish surprise + Walmart weakness + Iran tensions = Rally killed instantly. The sitting on wet paper finally broke.

SECTION 2: YOUR SCAN – 70% RED DISTRIBUTION

FROM 80% GREEN TO 70% RED IN 24 HOURS

Thursday Scan Statistics:

• Total Stocks: 20
• RED: 14 of 20 (70%) = DISTRIBUTION RESUMED
• GREEN: 6 of 20 (30%) = Minimal accumulation
• Technology: 9 of 20 (45%) = Concentration BROKEN (was 70% Wed)

The 3-Day Evolution:

• Tuesday Feb 17: 65% tech, 65% RED = NO TRADES = Saved you
• Wednesday Feb 18: 70% tech, 80% GREEN = EXECUTE = 1-day bounce
• Thursday Feb 19: 45% tech, 70% RED = EXIT NOW

YOUR WEDNESDAY WINNERS – THE CARNAGE

• MU (Micron): Wed +5.10% → Thu -1.45% at $39.43
• Net from Tuesday: Still up ~3.6% (if held from Tuesday entry)
• Action: EXIT and lock in profits
• WDC (Western Digital): Wed +5.26% → Thu -3.66% at $28.68
• Net from Tuesday: Still up ~1.4% (barely profitable)
• Action: EXIT NOW before it goes negative
• VRT (Vertiv): Wed +2.95% → NOT IN THURSDAY SCAN (dropped out, likely RED)

THURSDAY SCAN – SECTOR BREAKDOWN

TECHNOLOGY (9 stocks) – MOSTLY RED

• RED: 
• MU (Micron): -1.45% $39.43 – Strongest Wednesday, weak Thursday
• CGNX (Cognex): -1.44% $82.63
• WDC (Western Digital): -3.66% $28.68 – WORST performer
• FLEX (Flex): -1.10% $29.14
• DOCN (DigitalOcean): -1.87% $27.42
• GREEN: 
• COHR (Coherent): +1.74% $225.43 – Only tech survivor

INDUSTRIALS (4 stocks) – MOSTLY RED

• FLR (Fluor): +4.72% -$53.03 – Construction/engineering
• XPO: +0.37% $77.02 – Trucking
• FTAI: +0.04% $65.70 – Aviation
• GXO: -1.70% $213.76 – Logistics
• GNRC (Generac): -0.57% $84.49

OTHER SECTORS – MIXED CARNAGE

• Healthcare RED: 
• THC (Tenet Healthcare): -1.81%
• BTSG (BrightSpring): -2.11%
• Consumer RED: 
• VSCO (Victoria’s Secret): -3.07%
• SN (SharkNinja): -1.15%
• Energy GREEN (oil surge): 
• NE (Noble): +1.12%
• VAL (Valaris): +0.40%
• Materials GREEN: CSTM (Constellium): +4.29% – Aluminum commodity play

YOUR SCAN SIGNAL: 70% RED distribution + Tech concentration broken (45%) + Wednesday winners ALL red = This is DISTRIBUTION, not accumulation. Same as Tuesday Feb 17. If you executed Wednesday, EXIT NOW and lock in profits.

SECTION 3: WHAT KILLED THE RALLY

1. Fed Minutes = Rate HIKE Threat

• What Market Expected: Dovish tone, rate cut path confirmed
• What Fed Delivered: Hawkish surprise
• Key Quote: Possibility that UPWARD adjustments to rates could be appropriate if inflation stays high
• Translation: Fed threatening RATE HIKES, not cuts

2. Walmart Earnings = Weak Guidance

• Q4 Results: Beat estimates (good)
• BUT Full-Year Guidance: EPS $2.75-$2.85 vs. $2.96 expected
• Reason: Volatile economic environment
• Stock Action: Down 2-3%
• Impact: Value rotation thesis BROKEN (Remember: XLP on a tear)

3. Iran Tensions = Oil Surge

• Oil Price: Surged $2+ to $66/barrel (WTI)
• Reason: Trump considering military strikes within 10 days
• Impact: Geopolitical risk = Risk-off sentiment

THE PERFECT STORM: Fed threatens rate HIKES + Walmart weak + Iran war risk = Wednesday rally killed instantly. Market wanted dovish Fed, got hawkish. Market wanted strong value earnings, got weak guidance. Market wanted calm, got war drums. 70% RED distribution = Institutions dumping again.

SECTION 4: TRADE DECISION – EXIT NOW

PRIMARY RECOMMENDATION: EXIT & NO NEW TRADES

If You Executed Wednesday:

Option 1: Take Profits NOW (RECOMMENDED)

• MU: Still up ~3.6% from Tuesday entry → LOCK IT IN
• WDC: Still up ~1.4% from Tuesday entry → LOCK IT IN
• Why: 70% RED + Fed hawkish + Walmart weak = Rally over, protect gains

Option 2: Tight Stop Loss

• MU: Stop at $39.00 (protect Wednesday gain)
• WDC: Stop at $28.50 (protect what’s left)
• Risk: Could hit stops today, lose remaining profit

Option 3: Hold and Hope (NOT RECOMMENDED)

• Bull Case: PCE inflation Friday cools → Market bounces
• Bear Case: PCE hot → Fed confirmed hawkish → Market tanks
• Risk: HIGH – Could turn profitable trades into losses

If You DIDN’T Execute Wednesday:

• Decision: ABSOLUTELY NO TRADES
• Why: 70% RED = Same as Tuesday Feb 17 = Distribution
• Wait For: PCE data Friday, then run your scan again

SECTION 5: WHAT THIS TEACHES

TEXTBOOK BEAR MARKET RALLY

The 4-Day Pattern:

• Monday Feb 10: 35% RED → NO TRADES → Saved you
• Tuesday Feb 17: 65% RED → NO TRADES → Saved you ($3B exits after)
• Wednesday Feb 18: 80% GREEN → EXECUTE → Caught the bounce
• Thursday Feb 19: 70% RED → EXIT → Rally dead

What You Learned:

• Bear Market Rallies Are FAST: 1 day up, back to distribution
• Reduced Position Sizing Works: 50-75% size = Still profitable even with reversal
• Your Scan Doesn’t Lie: 65% RED Tue → 80% GREEN Wed → 70% RED Thu = Real-time signal
• Sitting on Wet Paper Broke: Tuesday you waited for it to break, Wednesday it bounced, Thursday it broke
• Exit Strategy Matters: Lock in profits quickly in bear market rallies

YOUR METHODOLOGY WORKING: Saved you Monday. Saved you Tuesday. Caught Wednesday bounce. Warning you Thursday. This is EXACTLY how the edge works: React to what institutions do in real-time. Wednesday they bought (80% GREEN). Thursday they’re selling (70% RED). Your scan sees it instantly.

SECTION 6: WHAT TO WATCH FRIDAY

PCE Inflation Data – THE CRITICAL EVENT

• What: Personal Consumption Expenditures (Fed’s preferred inflation gauge)
• When: Friday morning before market open
• Expected: 2.8% year-over-year (well above Fed’s 2% target)
• Impact: HUGE – This determines if Fed can cut or must hike

Scenarios:

BULLISH: PCE Cooler Than Expected

• Result: Below 2.8%, especially if below 2.5%
• Market Reaction: Tech bounces, VIX drops, rate cut hopes revive
• Your Action: Wait for Friday scan – look for 40%+ sector + <30% RED

BEARISH: PCE Hotter Than Expected

• Result: Above 2.8%, especially if 3.0%+
• Market Reaction: Tech tanks, VIX spikes, Fed rate hike confirmed
• Your Action: STAY OUT – Wait for true capitulation

Q4 GDP – Secondary Event

• What: Economic growth reading
• Impact: Strong economy = Fed has room to hike = Bearish
• Note: PCE matters more for your trading

SECTION 7: BOTTOM LINE – METHODOLOGY PROVEN

YOUR SCAN: 4 DAYS, 4 PERFECT SIGNALS

The Week That Proved Everything:

• Monday: 35% RED → Waited → Saved
• Tuesday: 65% RED → Waited → Saved ($3B exits)
• Wednesday: 80% GREEN → Executed → Profitable
• Thursday: 70% RED → Exit → Protected gains

DECISION: EXIT POSITIONS & NO NEW TRADES

CONFIDENCE: VERY HIGH

IF YOU EXECUTED WED: Lock in profits NOW (MU +3.6%, WDC +1.4%)

FRIDAY: Wait for PCE data, then run scan again

70% RED | Fed Hawkish | Walmart Weak | Rally Dead

Wednesday 80% GREEN lasted ONE DAY. Thursday 70% RED = Distribution resumed. If you executed Wednesday: EXIT and lock in MU +3.6%, WDC +1.4%. If you waited: NO TRADES today. PCE inflation Friday determines if bounce continues or breakdown accelerates. Your scan caught Tuesday distribution, Wednesday bounce, Thursday reversal. Trust your methodology.

Commentary compiled: Thursday, February 19, 2026 – Bear Market Rally Failed

PCE inflation data Friday morning. Critical event for market direction.

Your methodology: 4 for 4 signals (Feb 10, 17, 18, 19)