That mix is why I want it. The bad news is known, the stock already reacted, and a court date nobody can time sits over the shorts. I expect $ACI back at the top of its value area within four weeks, and my trade doesn't need the lawsuit.

Start with why it is hated. The last report looked fine on the surface, a small earnings beat. Under it, sales at existing stores slipped, profit fell hard, and the CEO said traffic is below where it needs to be. Management pulled its guidance, and executive chair Meg Whitman said "dramatic improvement is needed now". BofA cut it to Underperform and JPMorgan moved to Neutral. The stock is down 23% this year, while Kroger is up.

Here is what I find strange. The stock rose after that report. It climbed for two weeks, then gave it all back in three sessions last week, and I found no news behind the drop. A stock that shrugs off a bad report and then falls on nothing looks like positioning to me. Monday's bounce came on more volume than Thursday's drop. One session doesn't prove the selling is over, but it is the evidence behind my entry.

Now the lawsuit. Albertsons is suing Kroger over their failed merger, and it wants more than $8B. Its whole market value is about $6.4B. A ruling can take months, an appeal can follow, and even a win would land on about $9.3B of debt. Nobody can price that well, so I leave the check out of my math.

What matters is what the case does to the people short this stock. They don't know when a ruling lands, and they can't know how long they will have to hold. Some will cover early. I need that to start within four weeks.

How to read the chart. The value area (VA) is where 70% of the volume traded. VAH is the top, VAL the bottom, VPOC the busiest price. My full guide to volume profile is here.

The grey zone is October's value, and the blue zone is last week's. Last Thursday's close fell under the busiest price of October and under what became last week's VAL. Two sessions later, the stock was back above both. That is the zone I want to buy. My thesis is simple. Sellers ran out there, and shorts have a reason to cover. That can carry $ACI back to the top of value.

The options market leaned the same way. Most of the money over the past few weeks went to calls, and on one day in October the calls dwarfed the puts. That came before the drop, so I treat it as a hint.

Kroger is up this year, consumer staples are up, and $ACI got left behind. Part of that gap is earned, and it won't close in four weeks. I only need a piece of it.

Here is exactly how I am playing it.

Read more

Now let's try to understand what happened this week. Two of the biggest AI names had their worst days in decades. Alphabet lost 12.6% on Thursday, its worst day since its 2004 IPO. Intel lost 28.6% on Friday, its worst since 1974. It is not common to see a correction of this size. The seven largest tech companies now sit close to $3 trillion below their peaks. If you follow me, you know I was very skeptical about tech for weeks, and I am happy not to have any exposure.

Since September, 9 of my 12 filled ideas are in profit. Best so far: $PBF, both targets hit, +17.7%.

And this week's trade idea has the same signal as $HEI, only bigger. One insider, $29 million, the day after a 15% drop.

Why AI stocks are falling

Most of these stocks peaked in May or June. The pressure is cash, and this week's results made it plain. Analysts expected Alphabet to bring in $2.7 billion of cash last quarter. It burned $9.1 billion. Amazon burned $33.5 billion in the quarter alone. Meta burned $2.1 billion last quarter. Microsoft made $18.6 billion, and its stock sits only 4% below its high. The market pays for cash.

Now put that next to rates. A 10-year Treasury pays about 5%, with no credit risk. The Fed held rates this week, two voters wanted a hike, and traders still see 71% odds of a hike before year end. With Treasuries at 5%, investors stopped waiting for AI cash. Alphabet lost close to $500 billion of market value on Thursday alone.

Only the AI trade crashed. Most stocks went up. Since its October 6 high, the Nasdaq-100 fund is down 9.1%, while the average S&P 500 stock is up 2.8%. Health care closed Friday at a record.

Who is next

$NVDA and $TSM. They still stand, only 14% and 16% off their highs, and their sales are the giants' spending. Amazon kept its $220 billion plan for 2026, and Meta raised its floor to $135 billion. Nobody has cut yet. The day one of them cuts, those two fall first. That same cut fixes the giants' cash flow and breaks my view. First test: Apple on Monday. It buys the same memory chips.

The damage is already spreading. The giants' spending made memory chips scarce and expensive, so PC makers now build fewer PCs. Intel, Qualcomm, AMD, Dell and HP all paid for it on Friday. 20 of the 27 AI stocks I track are now 20% or more below their highs.

$CRWV is already 60% below its high, $ORCL 50%.

The market in 3 charts

The Nasdaq fell, and most stocks rose anyway. The Nasdaq-100 fell for a third week while the breadth line rose for a third week, which means the selling stayed in one corner while the rest of the market kept getting bought. Friday was the test. On the worst day for the S&P 500 since June, the line barely moved, and a real crash never looks like that, because in a real crash investors sell everything at once to raise cash. What we have is money leaving AI for the rest of the market, and a rally that spreads under the surface while the headline index falls. The repair is young, since new lows still beat new highs, so I pick stocks one by one and leave the index alone, because its biggest weights are the AI giants.

Investors now pay for cash that arrives this quarter. The winners were drug makers, phone companies, materials and factory names, businesses whose cash comes in now. The big loser was communication services, the sector where the S&P 500 files Alphabet and Meta, two companies that spent more on data centers last quarter than their business brought in. That is Alphabet's cash miss seen from the other side, and it tells you where the money goes next: to companies with cash today and a stock price that does not depend on the AI build-out paying off later. Industrial distributors sit near the front of that line, because they get paid as soon as a factory orders, and that is where I went looking for this week's trade.

Investors are scared of tech, and only tech. The VIX measures fear on the whole S&P 500, and it ended the week where it started. The same gauge for the Nasdaq-100 sits far above it. Traders pay a lot to insure tech stocks and almost nothing for the rest. Calls on small caps and industrials are cheap right now. For anyone who wants to play the rotation with options, this is the time. The risk is that the AI selling spreads to the rest of the market. The sign would be the line in the first chart, the count of stocks rising minus falling, turning down.

What I watch this week

• ISM, Monday 10:00. The first read on factories since the crash. 54.7 expected. Under 50, factories are shrinking, and the money that moved into factory names this month loses its reason to stay.

• The 10-year, all week. It drives the AI selloff: the longer Treasuries pay close to 5%, the less patience investors have for AI cash that comes later. It closed Friday at 4.93%.

• Apple, Monday after the close. The first giant to report after the crash, and it buys the same memory chips. If the chip squeeze shows up in its margins, the selling spreads from the PC makers to the largest company in the market.

• Jobs report, Friday. About +60,000 expected after +29,000 in September. A strong number keeps rates high, which hurts the AI spenders and helps the factory names.

• AUD/JPY. This pair rises when investors want risk and falls when they run from it. This week it rose 0.9% while the Nasdaq-100 fell 2%, so currency traders saw a tech selloff and no crash. The warning would be AUD/JPY falling hard while stocks still hold up.

• Midterms, Tuesday. Health care was the biggest winner of the money leaving AI. A Democratic sweep would bring back talk of drug-price controls and could knock out that leg of the rotation, which leaves fewer places for that money to go.

🏆 The Scoreboard

12 of my 13 ideas since September filled. 9 are in profit. $NOV sits at its entry. 2 closed at a loss: $GDX -6.7% and $SDRL -4.2%. My only chip trade, $MU, closed at +1.1%, half at target and half stopped.

🔥 Trade of the Week: $MSM

Now, $MSM. MSC Industrial Direct, a $6.8 billion company. It sells cutting tools and supplies to American machine shops. Machine shops order every day, so it sees factory demand early.

On October 22 it reported record sales of $1.08 billion, up 10.3%, and the stock still fell 15.4%. Sellers reacted to a $42 million write-down and a lower margin forecast. The write-down is a one-off, and nothing in the quarter showed weaker demand. So the market punished a growing company for one accounting line, in the same month that money left AI for exactly this kind of business.

Then the one person who knows this company best bought the drop. The next day, Mitchell Jacobson, former CEO and son of the founder, bought $29 million of stock at $115.94. The insider board in my app showed it on October 27, the second-largest insider buy that day. And at 18.4 times next year's earnings, it is the second cheapest of the seven industrial distributors I compared.

I plan to buy it this week, after Monday's factory data. The exact plan is below for paid members.

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I’m planning what comes next for The Philosopher Investor, and I’d rather ask you than guess.

It’s a short survey, 3 to 5 minutes. Honest answers help me most.

Take the survey

It’s anonymous unless you leave your email. The survey closes Friday, November 6.

Thanks for reading,
Daniel

The method comes from Jim Dalton's Mind Over Markets and from the way I read charts every day. Any charting tool can draw it, and so does the app. It shows where buyers and sellers agree.

Price is an auction

A stock moves to find trades. It rises to find sellers and falls to find buyers. Where the two sides agree, a lot of shares change hands. Elsewhere, price moves on fast.

Volume profile draws that. It turns the chart on its side. Each bar shows how many shares traded at one price.

The fat part is where the stock spent its time. The thin ends are where one side gave up.

Four words

Every level I use comes from four words.

The value area (VA) is where 70% of the shares traded. It is the price range the market found fair.

The VAH is the top of the value area. Above it, price looks expensive. Sellers tend to show up there.

The VAL is the bottom. Below it, price looks cheap. Buyers tend to show up there.

The VPOC, the volume point of control, is the single busiest price. It works like a magnet. Price leaves it and comes back to it.

Thick and thin

Inside a profile, some prices are thick and some are thin. A high volume node (HVN) is a thick spot. Price slows down there and chops. A low volume node (LVN) is a thin spot. Price runs through it fast, because nobody wanted to trade there.

That gives me two rules. My targets sit where price likes to stop: an HVN, the VPOC, or the far edge of value. My stop never sits inside an LVN, where price can rip right through it.

The month decides, the week refines

I use two profiles. The last closed month, and the last closed week. Never the month still in progress. Its busiest price keeps moving, so it can't be a level yet.

The month is the map. My targets live on monthly levels. The week shows where the fight is right now, so my entry and my stop often sit there.

On the chart below, and in every trade idea I send, grey is last month's value area and blue is last week's.

A wick is never acceptance

This is the question that decides most trades. Price pokes above a level. Did the market accept that price, or reject it?

A rejection is a spike that comes straight back. A long wick above the VAH, then a close back inside. The new price found no takers.

Acceptance takes time. Two daily closes or more beyond the level, and the stock starts to build volume there. Then the old level has changed its job.

Where is price?

Before any trade, I ask one question. Where is price compared to value? There are three answers.

Inside value, I trade the edges. I buy near the VAL and sell near the VAH. The middle gives me no edge, so I leave it alone.

Out of value and rejected, price tends to come back in. The VPOC pulls it.

Out of value and accepted, I follow the move. Fighting an accepted move costs a lot of money.

The 80% rule

This is the setup I like most. Price falls out of the value area. It can't stay out. It gets back in and holds there.

Then price often travels all the way across. First to the VPOC, then to the other edge. Dalton calls it the value area rule. Traders call it the 80% rule. The old rule of thumb says it plays out about 4 times out of 5.

The key word is holds. One close back inside is the first sign. Then I want to see price stay in. I treat the 4 in 5 as a tendency.

A level wears out

A level is a pile of waiting orders. Each test eats some of them. The first touch of a VAL usually brings a strong bounce. The second one is weaker. By the third, I get careful. That is often when the level breaks.

So I prefer a fresh level.

From the map to the plan

Entry, stop and targets all sit on a level. Here is how one plan comes together.

Last month's value ran from $95 to $105. The VPOC sat at $100.

The stock broke under $95. Buyers built a new floor there for a week, between $92 and $95.

Then it closed back above $95. Twice. Sellers couldn't keep it out. That is the 80% rule setting up.

Here is how I'd play it.

Entry: $95, after the second close back above the month's VAL.

Stop: a daily close under $92, last week's VAL. That is about 3% of risk.

Target 1: $100, the VPOC. About 5% up, 1.7 times the risk. I sell half there and move my stop to my buy price.

Target 2: $105, the far edge of value. About 10% up, 3.3 times the risk.

One daily close under $92 and I sell. The setup is dead.

Timing comes from elsewhere

Volume profile gives me the levels. The timing comes from the rest of my work: the news, the sector, the options flow and the screeners.

See it on any stock

In the app, open any stock, click Layers on the chart, then Value zones. The value area, the VPOC and the volume at each price show up on the chart, updated every night.

Daniel

Now, $NOV. I like this one even more. $NOV, the oil equipment maker. They build the rigs and parts that oil drillers run on. Last night it reported. Earnings were $0.25 a share, in line with forecasts. Sales came in at $2.23B, up 2% from a year ago and a bit above forecasts. A small beat on sales. Then the stock dropped almost 7% this morning. That is the setup I wait for: a decent quarter, a scary outlook, and a stock that falls into a zone buyers have defended for two weeks.

Why did it fall? Not on the quarter. On what comes next. NOV cut its order outlook for 2026, guided its equipment sales lower for the fourth quarter, and burned $47M of cash. But management expects 2027 orders to come in well above this year and last. Buyers took it back the same morning. To me, that says the worst of the news is in the price.

How to read the chart. Quick reminder first. The volume profile shows how many shares traded at each price. The value area (VA) is where 70% of that volume traded. VAH is the top of it. VAL is the bottom. VPOC is the busiest price.

September’s VA is the grey zone. VAL about $19.70, VAH $21.45, VPOC about $20.30. Last week’s VA is the blue zone. VAL about $18.55, VAH about $19.30. The week before built its value in the same spot. Buyers keep defending it.

This morning $NOV fell into last week’s VA, near $19.20. Then it bounced. Now it trades around $19.50, about 20 cents under September’s VAL. So it sits below September’s value, and on top of last week’s. My thesis is simple. The selling is done. $NOV gets back inside September’s VA. Here is what lines up with me.

• 2 of my screeners flag it. The pullback screener since October 19, the golden cross since October 21.

• More than 90% of the money spent on $NOV options in two weeks went to calls.

The sector helps too. Energy is the best sector this year, up about 56% through Monday. The oil services fund is up about 44%. $NOV is up about 31%. So $NOV trails its own group. I want to buy that gap.

Here is exactly how I am playing it.

Read more

• Meta spent more cash than it made: free cash flow went from +$10.6 billion a year ago to -$2.1 billion. The stock lost 9.4%.

• Last week I wrote that the AI buyers pay cash. One of the biggest no longer does.

• The 10-year yield closed under 5% for the first time in a month.

• The money went home: homebuilders +4.8%, regional banks +3.8%, small caps +2%, Nasdaq-100 -0.8%.

• What I watch: the Fed and Microsoft on Wednesday. A 10-year back above 5% undoes the whole move.

• This week's trade: a bank with a record quarter, 4.6% under its high.

• Scoreboard: 7 of 10 trades in profit, +3.3% per idea on average against -0.2% for the S&P 500 on the same days.

In case you missed it:

• 🎯 TRADE IDEA: $HEI

• Wall Street Is Quietly Betting on a Recession

• 🎯 TRADE IDEA: $VOD

Hello my friends,

Last week the bond market bet that the Fed would hike until something broke. This week the 10-year Treasury yield closed under 5% for the first time in a month, and the thing that cracked was bigger than I expected.

On Wednesday Meta ($META) reported its third quarter. Sales rose 26%, and the company still spent more cash than it brought in. Its business brought in $32.8 billion. It spent $34.9 billion on data centers and equipment in three months. Its free cash flow came out at minus $2.1 billion, after plus $784 million in the second quarter and plus $10.6 billion a year ago.

Last week I wrote that the damage from AI debt should stop with the builders, because the buyers at the top pay cash. Meta just showed that one of the biggest buyers no longer does. It now owes about $84 billion and holds $82.4 billion in cash. The stock lost 9.4% this week.

Investors sold the AI spenders and bought Treasuries, and the lower yields lifted the companies that borrow and lend at home. Homebuilders gained almost 5%. Regional banks gained almost 4%.

This week's trade is one of those banks: it just posted a record quarter, raised its forecast, and sits 4.6% under its high of the year.

🏆 The Scoreboard

10 of my 11 trade ideas since September filled. 7 are in profit, $HEI sits just under its entry, and 2 closed at a loss.

Paid subscribers get:

• My full plan: the 2 buys, the stop, 2 targets and a runner, all on the levels where the shares changed hands

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📊 Market Health

The S&P 500 fell 0.5%. Small caps rose 2%.

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Most portfolios break because of risk, long before the picks matter. One position grows too big. A stock keeps falling and the owner keeps buying. So I built this portfolio around risk first, and the picks come second.

Here are the rules. I keep a few settings to myself, and every change to these rules will come with a note to you.

The tickers below are only examples, picked to show each rule at work.

1. Every block carries the same risk

The portfolio has five blocks. Four of them hold stocks, each with its own style:

• Trend leaders: companies already leading the market.

• Pullbacks: strong stocks taking a breather.

• Breakouts: stocks that just left a long, quiet range. I buy them on the first dip.

• Catalysts: stocks moved by fresh news, like a strong quarter.

Each style holds three or four stocks.

The fifth block holds the hedges: long Treasury bonds, gold and commodities. When stocks drop, they tend to go their own way.

Each block carries the same share of risk. Risk here means how much a holding swings from day to day. So a calm bond fund gets more dollars than a jumpy chip stock. For example, with the prices of October 23, the rules would put 8% in TLT and 3.4% in TSM. Their risk is about the same. Every month I measure the risk again and rebalance.

2. I only buy stocks that are already rising

A stock must trade above its 200-day average, the average price of the last 200 trading days, about ten months. That average must be rising too. When a stock I own closes below it, I sell the next morning.

I also skip stocks that have run far above that average. After a huge run, the next buyer is often the last one.

3. I buy inside the normal range, away from its top

Every stock has a normal price range over the past month. I buy when the price sits inside that range, away from its top.

When the price drops below the range, the stock is still falling and nobody knows where it stops. I wait. I buy once it climbs back inside.

Take TSM as an example. On October 16 it closed below its range. On October 19 it climbed back in. That close is the signal, and the buy goes in at the next morning's open.

4. Every position has its exit before I buy it

Each stock comes with a stop price, set on the day I decide to buy. If the stock closes below it, I sell the next morning, with no debate. I can raise a stop as the price climbs. I never lower it.

Each stock also comes with two sentences: why I own it, and what would make me sell before the stop. You see both in the app.

5. Winners grow in steps

I start each position small. If it rises, I add to it, twice at most, and only while its trend holds. No single stock goes above 8% of the portfolio.

6. When a stock runs too hot, I sell a third

When the price shoots above the top of its normal range and then turns down, I sell a third of the position. The rest keeps running.

Take CPAY as an example. It closed above its range on Thursday, October 22, and turned down on Friday. That is the signal to sell a third at the next open.

7. Cash is a tool

I follow a few market gauges that I tested over many years. When several of them show euphoria at once, I hold more cash. When the market capitulates, I put the cash to work.

In the first weeks, cash stays high while the stocks wait for their buy zone. That is part of the plan.

What you get as a paid subscriber

• The live portfolio in the app, coming soon. Every position, its weight, its stop and the reason I own it, updated every night. Paid subscribers get a note the day it opens. It will live here: app.thephilosopherinvestor.com/models

• A Portfolio Note each time the portfolio changes. What I bought, what I sold, and why.

The rules decide how much to buy and when to sell. I choose the stocks, and every note shows you why.

Last trade, $VOD. I bought it at $15.40 on October 12. On Thursday afternoon it traded at $16.07, up about 4%.

HEICO lost 18% as the Street turned on aerospace.

On September 14, Melius Research cut five aerospace names from Buy to Hold, HEICO among them. Melius expects growth in spare parts and repairs for airlines to slow next year. Then the FAA pushed back the 737 MAX 10, and three banks trimmed their HEICO targets. Since its August 6 close, $HEI is down 18%. The aerospace fund fell just as much.

HEICO makes replacement parts for airliners and electronics for defense. A slower aftermarket would hurt it. The last quarter does not show it yet.

The news.

The last real news from HEICO came on August 25, and it was good. Sales grew 23%, profit grew 33%, and the operating margin reached 25%. Even without the companies it bought, sales grew 14%. Nothing since then has changed HEICO's own numbers.

My thesis: the downgrade pushed the price down to a floor, and the business is still growing.

• The stock dipped under September's value three times, to about $292, and buyers took it back each time.

• Aerospace fell as much as HEICO, so the selling was about the group.

• The next report is not due before mid-December, so this trade has time to work.

Industrials trail the market. Over the last month, the sector lagged the S&P 500, and aerospace did worse. HEICO is in a downtrend, under its 50-day and 200-day averages. I trade it as a bounce off a floor, with a tight stop.

Here is exactly how I am playing it. The second target pays 3 times the risk.

Read more

This week inflation came in hot twice, and the bond market bought Treasuries both times.

On Wednesday consumer prices came in hotter than expected, up 3.7% over a year. On Thursday producer prices rose 6.3% over a year, the fastest pace since December 2022. The 10-year Treasury yield spiked to 5.33% within hours of the first report, and by Thursday it had its lowest close in three weeks.

Traders raised their bets on the Fed at the same time. On Polymarket, the odds of another rate hike this year reached 87% on Thursday. On Friday the Fed chair, Kevin Warsh, said he does not pre-judge meetings, and the odds of a hike this month fell to about 15%.

Lenders usually demand a higher yield as inflation rises. This week they accepted a lower one. Bond buyers now expect the Fed to keep hiking until it causes a recession, and a recession needs lower rates later. The first crack showed up in AI credit, the debt that pays for the data centers. The stock market sold the companies that need cheap money and bought the ones people pay every month.

Part of the rally may be plain fear, since Treasuries rose on the days tech fell. Fear would have pulled the 2-year yield down too. It barely moved, down 0.03 point from October 9 to Thursday, because traders still expect the Fed to hike. The 10-year fell 0.14. Buyers paid for the long bonds, the ones that gain when growth slows.

That bet favors the stocks that fell as long rates rose. This week's trade is one of them: a store landlord whose CEO and a director bought $4.1 million of its stock, every share above Friday's price.

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📊 Market Health

The Nasdaq-100 lost 5.5%. The average stock in the S&P 500 gained 0.5%.

The Nasdaq-100 had its worst week since April 2025. The equal-weight S&P 500 rose. The gap between the two funds, $RSP and $QQQ, reached 6.0 points, the widest in a week since November 2020.

The giants fell and the rest of the index rose. The breadth line, a smoothed running total of large US stocks rising minus falling, climbed every day this week. It had set its low of the year on October 5.

The share of S&P 500 companies above their 50-day average rose from 35% to 45%. That is a repair, and more than half the index still sits below the line.

Small companies missed the repair. Across the 12,000 US stocks and funds in my app, fewer than one in four sit above their 50-day average, and new 52-week lows outnumbered new highs on Friday.

The buying went to calm stocks. The fund of the least volatile S&P 500 companies beat the fund of the ones that swing the most with the market by 12.9 points, the widest gap in a week since both funds started trading in 2011.

Investors stayed in the market. They traded growth that runs on debt for cash flow they can count today.

Individual investors turned more cautious too. In the AAII survey, bears retook the lead from bulls, 42% to 39%.

🚨 Sector Rotation

The market stopped asking who sells to AI. It started asking who lends to it.

On Tuesday a chart went around trading desks: a CoreWeave bond had briefly traded at a yield of 15%. CoreWeave rents AI computing power and carries about $50 billion of obligations. Its stock fell 15.5% on Wednesday, and the price of insurance against its default hit a record on Thursday.

The selling spread to every company whose AI plans run on borrowed money. $ORCL, which borrows to build data centers for OpenAI, lost 8.8% on Wednesday alone. The chip makers had their worst week since April 2025, and $SMH, the fund of the largest chip companies, lost 10.5%.

Last week I wrote that the market sold the AI promises and kept the AI contracts. This week it sold the contracts too. The power producers that led the market a week ago fell, $CEG by 9.0%. A signed power contract is only as good as the customer that pays it, and the market now doubts some of those customers can borrow.

The largest buyers fell the least. $MSFT and $META lost about 1% each. They pay for most of their data centers from their own cash flow, so a tighter bond market costs them less.

The closest precedent is 2000. Telecom carriers borrowed to lay fiber for traffic that came years later, and Global Crossing filed for bankruptcy in January 2002. Today the debt sits with the builders in the middle, and the buyers at the top can pay cash. The damage should stop with the builders and the people who lent to them.

Those lenders are the next link. CoreWeave borrowed from private credit funds such as Blackstone, and its co-founder has said it wants life insurers, which invest retirees' savings, to buy loans backed by its chips. Private loans are priced less often than bonds, so their losses show up last.

The money went to the businesses people pay every month:

• Consumer staples gained 5.0%, the best of the eleven sectors, led by $WMT and $KO.

• Energy gained 4.9%. WTI crude rose more than 10% to about $101 after Iran sank a container ship near the Strait of Hormuz, according to the US military.

• Health care gained 3.5%, led by $LLY.

• The phone companies rose together, $VZ by 7.5%.

• Technology lost 7.7%, the worst sector by far.

Staples beat technology by 12.7 points, the widest gap in a week since July 2002.

The banks opened earnings season with mixed results. Goldman Sachs beat by a wide margin, JPMorgan and Bank of America missed, and Citigroup warned that trading revenue could fall about 20% this quarter. The bigger risk for the banks is the yield curve. The gap between the 10-year and the 2-year yield shrank from 0.44 point to 0.33 this week. The Fed's end of the curve holds up, and the long end falls.

Two weeks ago the curve steepened, because lenders feared inflation and debt. Now it flattens, because they fear the Fed. A flatter curve squeezes the banks that borrow short and lend long, and it usually comes before the economy slows.

📉 Volatility

Last week investors insured only against a crash. This week they bought every kind of protection at once.

Last week I wrote that the calm would end if the VIX rose above 16. It crossed that line on Wednesday and closed Friday at 19.99, its highest close since July. Crash insurance kept rising too, and the SKEW index closed Friday at its highest since February 2025.

The rush came at the short end. The VIX9D, the price of protection over the next nine days, went from 11.26 to 20.12 this week. On Friday it closed above the VIX. Investors now pay more to cover the next nine days than the next month, so they expect the damage soon.

That kind of fear tends to pass. Since 2011 the nine-day index has crossed above the VIX 50 times after a calm stretch. A month later the S&P 500 was higher in 74% of those cases, a little more often than in an ordinary month.

The fear sits in tech. The Nasdaq-100's own volatility index closed 7.1 points above the VIX, the widest gap since August. On a scale where 100 is the most expensive protection in months, the Nasdaq-100 went from 8 to 31, and consumer staples went to 63. The money that moved into the shelters bought insurance on the way in.

The bond market stayed calm. The MOVE index, the VIX of Treasuries, ended the week at 101, near the 98 of the week before, while the VIX rose by more than a third. Bond traders bought long Treasuries and saw no need to insure them. That fits a planned bet on slower growth more than a run for safety.

💱 FX

Stocks panicked this week. The currency market did not confirm it.

A real run from risk shows up in three currencies at once. Traders buy dollars. They buy back the yen they borrowed to buy higher-paying currencies such as the Australian dollar. They park cash in Swiss francs. When all three rise together, the whole market stands behind a jump in the VIX.

This week only the franc moved, up 0.7% against the euro. The dollar index fell 0.4%, and the yen gained 0.2% against the Australian dollar.

The selling stayed inside the stock market. Investors traded one kind of stock for another, and nobody paid back the money borrowed in yen. That matches the nine-day VIX: the fear sits in stocks and looks short. The line I watch next is the yen. When the Australian dollar loses 3% against the yen in a single day, the borrowed money is coming home.

🏆 The Scoreboard

Eight of my nine trade ideas since September filled. Six are in profit, and two closed at a loss. I sell half at the first target, and the rest goes to the second target or the stop. That is how $DY still made +1.2% after its stop.

🔥 Trade of the Week:

This letter says the bond market now fears the Fed more than inflation. If that is right, the stocks that paid for the rise in rates get paid back first.

Agree Realty owns stores and rents them to the retailers the market bought this week. Walmart is its largest tenant, ahead of Tractor Supply and Dollar General. About two-thirds of its rent comes from tenants with an investment-grade credit rating, and the company pays its dividend every month.

From early March to October 8 the 10-year yield rose more than a full point, and the stock fell more than 21%. Nothing broke in the business. In July management raised its forecast for the year, and 99.8% of its stores are rented.

A landlord borrows to buy its buildings, and its dividend competes with Treasuries for the same savers. Rising long yields work against it twice, and falling yields help it twice. This week the 10-year fell, and the stock's lowest price of the year held.

Here is exactly how I am playing it. The first target pays 2.6 times the risk.

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The market sold Vodafone for a fight it is not in.

On Thursday, SpaceX said it will buy a block of US low-band spectrum from Grain Management, about $8B in cash according to the Wall Street Journal. That spectrum lets Starlink phones work indoors. On Friday the US carriers lost 10% to 13% in one session. Vodafone went down with them.

Vodafone sells phone and internet plans in Europe and Africa. It has no US mobile network. It sold its Verizon Wireless stake in 2014. $VOD is worth $36B, trades at about 9x next year's adjusted earnings, and pays a 3.5% dividend. If satellite phones come to Europe, Vodafone is on the right side: it co-owns SatCo with AST SpaceMobile, a venture built to sell that service to European carriers.

The news.

Thursday was also Vodafone's investor day for its UK business with Three. It raised its cost savings target to £1B by 2032, up from £700M by 2030. The targets went up, and the stock fell anyway. Selling a raised target is positioning, not bad news. Friday, $VOD lost 5.6%. Monday, the US carriers bounced about 1% to 3%. $VOD lost another 1.1%. Results come on November 10.

My thesis: Vodafone got sold for a US problem it does not have, and the bounce has not reached it yet.

• Since September 1, the US carriers lost 14% to 16%. $VOD lost 4%.

• Friday's drop was far outside its normal range, even after removing the market's move.

• Call buyers put 85% of the option money on the upside over the last 14 sessions.

The whole sector is out of favor. Communications trailed the S&P 500 by 5.6 points over the last month, tied for last with financials, and lagged again last week. That is where I want to buy: in the corner everyone left.

Here is exactly how I am playing it. The first target pays 2.4 times the risk.

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This week the market paid for protection against one bad day and stopped paying for protection against the gradual damage it is already taking.

Three events should have raised the price of insurance. The S&P 500 set a closing record on Tuesday, at 7,818.93, on the narrowest base of the year. On Wednesday the Fed minutes kept another hike on the table, and the 10-year Treasury yield touched 5.36%, its highest since 2002. On Thursday the Financial Times reported that OpenAI’s yearly revenue had topped out near $50 billion, about $20 billion short of estimates.

Ordinary insurance got cheaper anyway. Put options got cheaper on 14 of the 20 markets I follow, from the S&P 500 to long-term Treasuries, and the VIX closed the week at 14.84. Crash insurance went the other way. The SKEW index, the price of protection against a sudden collapse, jumped to its highest close since September 11.

The market is pricing calm with a small chance of a crash. The data says the damage is arriving one stock and one sector at a time, and that is the risk nobody is paying to cover.

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📊 Market Health

The index is pricing a strong market. The stocks inside it are pricing a decline.

On Tuesday, the day of the S&P 500 record, 164 NYSE and Nasdaq stocks sat at a 52-week low, against 69 at a 52-week high. By Friday it was 177 against 59. New lows have outnumbered new highs every day since August 14, and the gap has grown from about 30 stocks in mid-August to 118 on Friday.

The S&P 500 weights its largest companies most, so a few of them can carry it to a record while most of its members fall. Last week I showed the breadth line, a running count of large US stocks rising minus falling, at its lowest point of the year. It went lower again on Monday, the day before the record. Of the stocks I track in my app, only 26.5% trade above their 50-day average, against 25% a week ago.

That is what a slow bleed looks like. No single day breaks the market, so a crash put never pays. Each week a few more companies lose their trend, and the index keeps climbing as long as its giants hold.

This week's buying flowed to the calmest stocks, away from the ones losing their trend.

Funds that must stay invested cut their risk inside the market instead of leaving it. They sell the volatile names and buy the steady ones, and that kind of buying holds the index up without widening its base.

Individual investors read the record as safety. In the AAII survey, bulls outnumbered bears 40% to 39%, three weeks after bears stood at 53%.

Individuals are pricing the record, and the options market is pricing the crash. Neither is pricing the grinding decline in between, and that is where the losses are piling up.

The sectors show where the decline spreads and where the money runs to escape it.

🚨 Sector Rotation

The market sold the AI promises and bought the AI contracts.

Most investors still treat the AI buildout as one trade. This week the market split it in two: the companies paid on forecasts, and the companies paid on signed contracts.

The chain runs from OpenAI and a few others, who need computing power, to the largest technology firms that build the data centers, to the chip makers that sell them hardware and the power producers that sell them electricity. The Financial Times report hit the part priced on forecasts. $ARM lost 13.4% and $INTC 12.3%. $SMH, a fund of the largest chip companies, lost 4.32%. $EWY, the fund of South Korean stocks and home of two of the largest memory makers, lost 7.6%, and $TSM 4.1%.

The part priced on contracts rose. $CEG gained 15.8% after a long-term deal to supply Google with 890 megawatts of new nuclear capacity, and $VST 15.3% after the Department of Energy confirmed a loan of up to $4.2 billion for three of its plants.

A data center can delay a chip order by a quarter. It cannot run without power, and power is sold on contracts that run for years. Investors who doubt the customer's revenue keep the supplier with the signed contract and sell the supplier with the open order book.

The buyers sit in between. $AMZN gained 4.3%, $MSFT 3.4% and $GOOGL 2.4%, because a buyer that spends less on data centers keeps more of its cash. $ORCL fell 0.6%: it builds data centers for OpenAI under contract, so it carries the customer's risk.

The cost of that electricity is moving down the chain. The Energy Information Administration expects wholesale power prices in PJM, the largest US grid, to average about 41% more in 2026 than in 2025, from weather and from data center demand. Every data center that signs for power on that grid adds to the bill of the households and companies around it.

Last week I wrote that a pause in data center budgets would hit the only part of the market that still worked. No budget moved, and the market priced the risk anyway. On Friday Bloomberg reported that OpenAI expects $70 billion of yearly revenue by the end of the year, and $SMH still lost another 0.65% that day. From here the chips move on signed orders.

The rest of the money went to the shelters:

• Utilities gained 3.97%, the most of the eleven sectors, and the AI power producers inside the sector did a large share of that work. Part of the shelter trade was the AI trade in disguise.

• Consumer staples gained 3.60%, led by $WMT at +6.8% and $PG at +4.4%.

• Energy gained 3.60% with Brent crude near $104.

• Health care gained 2.79%, after the worst week of the eleven.

The slow bleed shows up in the industries that borrow. Among the 119 industries with eight stocks or more in the app's ranking, capital markets fell 79 places in a month, trucking 76 and rental and leasing 75. Truckers and leasing firms finance their fleets with debt, and brokers earn on deals that dry up as money gets expensive. Online retail gained 68 places and tobacco 55, two businesses that sell small, repeated purchases.

The shelters rose fast, and their trends have yet to turn. Utilities, consumer staples, financials, real estate and materials still count zero S&P 500 companies in a strong uptrend. The banks open earnings season on Tuesday, and they hold more bonds than any other sector, so their reports will put a number on what the rise in yields has cost.

The options market shows how investors chose to insure all of this.

📉 Volatility

Investors bought insurance against a crash and dropped insurance against everything else.

The VIX at 14.84 reads as calm. The SKEW index reads otherwise. It measures the price of protection against a sudden crash compared with ordinary protection, and it jumped from 144.88 to 154.34 this week, most of it on Thursday and Friday, the days of the chip selloff.

With ordinary protection this cheap, a put that only pays if the index collapses costs very little. Buyers kept their stocks and bought that ticket. A crash put pays on one violent day. It pays nothing on a slide spread over a month, the kind of damage the new lows already show.

Ordinary protection fell almost everywhere. Consumer discretionary dropped from 79 to 10 on a score where 0 is the cheapest in months and 100 the most expensive, regional banks from 79 to 42, and long-term Treasuries from 99 to 89. Two weeks ago I wrote that fear had moved to bonds. It is leaving them too.

Health care and financials went the other way, to 76 and 74 from 50 and 54. Financials carry Tuesday's bank reports. Health care rose 2.79% while its options got dearer, so the money that moved in also bought a way out.

Chips sold off without that care. $SMH lost 4.32% and its protection stayed at 6, near the bottom of its range. Holders sold shares and bought no insurance, and the Nasdaq-100 volatility index, which spiked to 21.98 on Thursday, closed Friday at 20.55, under the 21.20 of a week earlier. The chip sellers were changing their minds, without panic.

The last time the SKEW closed this high, on September 11, no crash followed. The gradual kind did. Over the next three weeks the 10-year climbed from 4.98% to 5.29%, the breadth line kept falling, and the S&P 500 ended September where it stood on the 11th.

Rates were the one place where the pressure eased this week. Last week I named 5.34%, the 10-year's intraday high, as the line to watch. Lenders pushed the yield above it twice, to 5.35% on Monday and 5.36% on Wednesday after the Fed minutes, and both times the yield closed below it. Friday's close was 5.24%.

Polymarket odds of another Fed hike this year climbed back to 77% from 72% a week earlier. The three-month bill, which follows the Fed, rose 0.07 point, while the 10-year and the 30-year each fell 0.03. A week earlier the bill fell and the long end rose.

A rise that comes from the Fed can be stopped by the Fed. A rise that comes from lenders' fear of inflation and debt has no such switch, so this week gave long-term borrowers a short break. The picture stays the same. The 10-year sits 0.07 point under its highest close since 2002, the 5.31% of Monday, the 5.34% line still holds above it, and the Fed's end of the curve keeps tightening.

The dollar carries the same squeeze abroad.

💱 FX

The dollar is back near its highest since April 2025, and its strength exports the squeeze.

The dollar index rose 0.3% this week to 102.23, after its highest close since April 2025 on Wednesday. Over the past month it gained 3.17% and rose against every major currency.

The Mexican peso lost the most, about 7.5% in a month, ahead of the euro at -3.5% and the New Zealand dollar at -3.3%. Every company and government that borrowed in dollars now pays more in its own currency, so the tightening that hits US small caps reaches foreign borrowers through the exchange rate.

The thesis of this letter holds as long as three things stay true: new 52-week lows keep outnumbering new highs, the VIX stays under 16, and the SKEW stays above 150. It breaks if new highs overtake new lows, the sign that the slow bleed has stopped, or if the VIX jumps, the sign that investors are paying for ordinary protection again.

This week's trade is the opposite case: a stock where the damage arrived in one day, where holders already pay for insurance, and where insiders buy.

🔥 Trade of the Week:

Last week's trade, $DY, filled its first order at $273.70 on Monday and hit its first target, $293.94, on Tuesday, 7.4% higher.

Dick's lost almost a third of its value in one day because of the company it bought. Its own stores kept growing.

Dick's Sporting Goods is the largest sporting goods retailer in the United States. In 2025 it bought Foot Locker for $2.4 billion. On August 25 the stock fell 30.7%, its worst day on record, after management cut its profit forecast for the year to $11 to $12 a share, from $13.50 to $14.50.

Seven insiders bought after the crash with their own money. One of them runs Foot Locker International, the exact business that broke.

Paid subscribers get who bought and at what price, how cheap the stock is against its peers, what the options market says, and my full plan with the entry, the stop and the targets.

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The September jobs report showed only 29,000 new jobs, about a third of what economists expected. Traders cut their bets on another Fed hike for the fourth session in a row, and the odds fell from 91% to 72% over the week.

Weaker jobs usually pull long-term rates down, because a cooler economy means less inflation and an earlier end to rate hikes. This week the 10-year Treasury yield went the other way. It had its highest close since 2002 on Wednesday, at 5.29%, and finished Friday at 5.28%.

Lenders now charge extra to hold long bonds, out of fear of inflation and of the government’s growing debt. Neither fear goes away with a Fed pause, so a pause will not bring relief to the people who borrow.

The S&P 500 lost 0.27% on the week while the Nasdaq-100 closed at a record, carried by a few chip companies that sell the hardware behind artificial intelligence and fund themselves with cash. Underneath, 327 of the S&P 500’s companies fell and only 169 rose. The gains stayed with the few companies that do not need to borrow.

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📊 Market Health

The rise in long rates is splitting the market between a few cash-rich chip companies and everyone who borrows.

A higher 10-year yield hurts stocks in two ways. It lowers what future profits are worth today, and it raises the cost of every loan a company has to refinance. Small and mid-sized companies feel it first, because they roll their debt more often.

The Nasdaq-100 gained 0.65% this week while the equal-weight S&P 500, where every company counts the same, lost 0.65%. The S&P 500 itself sits only 1% under its August 13 record. Its gains now rest on a few balance sheets, and a market that narrow has little room to absorb a disappointment from any one of them.

The breadth line at the bottom of that chart, a running count of large US stocks rising minus falling, hit its lowest point of the year this week. Only 25% of the stocks and funds the app tracks trade above their 50-day average, against 43% a month ago. In the S&P 500, just 32 companies are in a strong uptrend, meaning a steady climb over the last six weeks.

The selling has reached the bond market. On Friday, 315 stocks and funds sat at or near a 52-week low, among them the bond funds $AGG and $BND and the mortgage investor $AGNC. Bond funds and mortgage investors falling with stocks tell me the market is repricing the cost of money itself. That kind of weakness lasts as long as yields keep rising, whatever the next earnings reports say.

The 10-year now competes with stocks for the same money. The Shiller P/E compares the price of US stocks with their profits over the past ten years, adjusted for inflation. It sits at 41.4, against a median of 16.2 since 1871.

At that price, stocks are set to earn about 2.4% a year above inflation over the long run, or about 4.8% once the inflation the bond market expects is added. The 10-year Treasury pays 5.3%, locked in for ten years with no default risk.

Valuation is a poor timing tool, but it decides how much damage each rise in yields does. Today every rise lands on prices that are already stretched.

Individual investors are losing their fear while breadth keeps falling. In the AAII survey, bears dropped from 53% to 46% in two weeks, and bulls rose from 29% to 35%.

Fear is the fuel of broad rebounds, because frightened investors hold cash that they put back to work once prices stabilize. A market that loses its fear before its breadth recovers has less of that fuel left for the day the rest of the market needs buyers.

The sectors show where that pressure lands first.

🚨 Sector Rotation

This week sorted every sector by how much it depends on cheap money.

Chips rose because their profits grow fast enough to absorb a higher rate. The companies that sell the hardware behind artificial intelligence are paid by the largest technology firms, which fund their data centers out of very large cash flows. A higher 10-year does little to slow those orders.

A fund that holds the largest chip companies gained 3.96%, and Nvidia traded at a record price on Friday. Technology came closest to a healthy reading, with just under half of its stocks above their 50-day average.

That leadership depends on a handful of buyers. A pause in data center budgets would hit the only part of the market that still works.

Almost everything that runs on borrowed money fell:

• Homebuilders lost 3.12%, because each rise in long rates pushes up the mortgage payment on a new home.

• Financials lost 2.46%, since banks and insurers hold bond portfolios that lose value as yields climb.

• Real estate lost 1.80%, as landlords refinance at higher rates and their rents now compete with a 5.3% Treasury.

Utilities were the exception. They bounced 0.81% after losing 3.87% the week before, but they carry heavy debt and compete with bond income, so a lasting recovery needs the 10-year to turn first.

The usual shelters failed at the same time:

• Health care, the sector investors usually hide in, lost 2.65%, the most of the eleven, with Johnson & Johnson down 5.6%. Consumer staples lost 1.86%.

• Long-term Treasury bonds lost 1.93%, even counting the interest they paid.

• Gold lost 3.37%, its second losing week.

Short-term cash, paying about 4.2% a year, was the one shelter that worked. Yields that climb on inflation and debt worries push bonds and stocks down together, which removes the cushion a classic stock and bond portfolio counts on.

The theme baskets split the same way. A speculative theme is worth most for profits many years away, which makes it the most exposed to a higher rate.

• The long shots fell: air taxis -11.6%, crypto -7.0%, rare earths -6.9%.

• The themes with revenue today rose: photonics +8.1%, cybersecurity +6.3%, semiconductors +4.3%.

Investors are treating long-dated hopes the way they treat long-dated bonds.

Inside the weakest sectors, some industries have no buyers left. At Thursday’s close, not one life insurer, specialty insurer, health insurer, mortgage lender, railroad or office landlord held above its 50-day average, against 86% of chip equipment makers and 74% of shipping companies.

Over the past month, grocery stores climbed 54 places in the app’s industry ranking and apparel retail 48. Precious metals miners fell 66 places.

An industry where every stock sits below trend has usually finished its forced selling. It tends to move first once the cause of that selling turns, and here the cause is the 10-year.

📉 Volatility

Protection is expensive in bonds and cheap in stocks, and bond traders usually see trouble first.

Bond and credit traders price the cost of money directly, so their options react first when that cost moves. Stock options price an index that a few chip giants are holding up.

The app ranks what protection costs today against its range since March, from 0 for the cheapest to 100 for the most expensive:

• Long-term Treasuries sit at 99 and junk bonds at 90.

• The S&P 500 sits at 14, the Nasdaq-100 at 14 and semiconductors at 6.

The VIX, the price of protection on the S&P 500, ended the week at 15.31, close to where it started. If the bond market is right, protection on stocks is the cheapest insurance available against the risk that matters most right now.

Under the record, some buyers are already hedging. An index and its volatility gauge usually move in opposite directions, yet this week the Nasdaq-100 hit a record while its volatility index rose from 20.87 to 21.20. Buyers paid up for protection while they chased the rally.

Put buying on individual stocks says the same. The ratio of puts to calls rose from 0.68 a week ago to 0.80 on Thursday, still far from the panic readings that come near real lows. A rally bought with protection in hand has fewer committed buyers than its level suggests, so it can drop fast on bad news.

Lenders pushed long rates up while the rates the Fed controls fell. The three-month bill, which follows the Fed, lost 0.05 point this week. The 10-year gained 0.11 point and the 30-year 0.14, to 5.63%.

Friday showed it in a few hours. Right after the weak jobs report the 10-year fell to 5.16%, and by the close lenders had pushed it back to 5.28%. Mortgages and company loans are priced off the long end, so a softer Fed does not reach the people who borrow.

The line I watch is 5.34%, Thursday’s intraday high. A close above it would tell me lenders want even more.

The currency market says the same thing from abroad.

💱 FX

The currency market is not confirming the Nasdaq’s record.

Currencies usually move before stocks, and this week they traded like a market that is getting more careful. The dollar index gained 0.94% to 101.92.

Over the past month, the dollar index rose 2.37%, and the dollar beat every major currency in the app. The currencies tied to global growth fell the most, led by the New Zealand dollar at -4.46%. The yen, a haven, lost only 1.39%. A strong dollar with the growth currencies at the bottom is the shape of a defensive market, and it raises the cost of every dollar loan taken outside the United States.

The Nasdaq-100 made a record while currencies traded this way, so the two markets disagree.

Japan spent ¥15.4 trillion, about $100 billion, between July 30 and August 26 to support the yen, after the dollar reached 163.86 yen in late July. The yen has weakened again since, to 157.83 per dollar.

Last week I named a Tokyo intervention as the variable to watch, and it has not come yet. If it comes, the yen can jump within hours. Every trade funded by borrowing cheap yen to buy higher-paying assets then has to close at the same time, which is how a calm market turns violent in a single session.

This week's trade comes from the part of the AI buildout that the market has already punished.

🔥 Trade of the Week:

Dycom lays the fiber, wireless and power connections that data centers and phone companies run on, work that has to be done before a single chip turns on. The stock traded as high as $566.47 on May 27 and touched $263.36 on Thursday, its lowest price in a year, in a week when chip stocks rallied.

Dycom’s problem is timing. Its record backlog keeps growing while some of its revenue slips into next year.

Paid subscribers get the rest below: the three insiders who bought, how cheap the stock is against its peers, what the options market says, and my full plan with the entries, the stop and the targets.

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On Wednesday the 10-year Treasury yield jumped 15 basis points to 5.11%, the highest since 2007. It closed the week at 5.18%. The trigger was a September business survey that ran at its fastest pace since July 2021, with input costs pushed up by energy. The same day, Fed governor Michael Barr said more hikes are likely. Polymarket now prices the odds of another hike this year at 90.5%.

The Nasdaq-100 closed at a record on Tuesday and finished the week up 3.3%. The equal-weight S&P 500 lost 0.2%. The biggest bond funds, from Treasuries to junk, closed at 52-week lows, and since Wednesday no sector has a majority of its stocks above the 50-day average.

Oil fell on talks to reopen Hormuz and took the last sector that was still holding up with it. So the index now stands on chips and a few platforms, in the week the cost of money reached its highest level since 2007.

Let’s get to the recap of this week.

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📊 Market Health

The jump in yields hit most S&P 500 members, and the largest names rose through it.

A higher long yield lowers what future profits are worth today. It also raises the cost of every loan a company has to roll next year. Most members of the index borrow, and the ten largest sit on cash and sell the AI capacity everyone is buying. So the gap between the Nasdaq-100 and the equal-weight S&P 500, where each member counts the same, reached 3.5 points in five sessions.

One session made the week. The S&P 500 gained 1.49% on Monday, when AMD and Meta led the Nasdaq Composite to a record, and lost 0.27% over the four sessions after it. The NYSE Composite, about 2,800 stocks, closed Friday 3.7% under its August 14 high, in the week the Nasdaq-100 set a new one. A rally that lives in one session and one index belongs to a few names.

The Nasdaq’s own breadth says the same. Its running total of advancing minus declining stocks fell to 1,910 on Friday, the lowest point on the app’s twelve-month chart. A line that falls means more Nasdaq stocks fell than rose over the period, and the index rose anyway because its largest names did.

Only 28.8% of stocks hold above their 50-day average and 43.1% above their 200-day, and on Friday 300 names made a 52-week low against 146 highs. The list of lows includes TLT, IEF, AGG, BND, LQD and HYG, the bond funds that hold Treasuries, investment-grade debt and junk. When Treasuries and junk bonds make new lows together, the market is repricing money itself, and that reaches every stock priced on a multiple of future earnings.

The spark for the bond selling was a survey. On Wednesday S&P Global's flash reading of business activity for September came in at 58.4, the fastest expansion since July 2021, with services at 58.7 against 56.0 expected. Input costs rose with energy prices. An economy running that hot gives the Fed no reason to stop, so the 10-year rose 15 basis points that day, the 5-year closed above 5% on Thursday and the 30-year finished the week at 5.50%.

The momentum count shows how few names carry the index. On Friday, only 26 of 492 S&P 500 members still had strong 30-day momentum. On September 10 there were 61.

The weight of the ten largest companies shows the same thing from the top. They now make up 41.2% of the S&P 500's value, against 30.8% in January 2022, close to the 42.3% high of October 2025. The ten are Nvidia, Apple, Alphabet, Microsoft, Amazon, Broadcom, Meta, Tesla, Micron and Eli Lilly. With that much weight at the top, the index can hold its level while most of its members fall, which is what this week showed.

At today's prices, US stocks are priced to earn 4.8% a year over the long run. The 10-year Treasury pays 5.2% with the coupon guaranteed. That leaves an equity risk premium of -0.39%: an investor is paid less to own stocks than to lend to the government for ten years. The Shiller P/E, price against a decade of real earnings, sits at 40.9, against a median of 16.2 since 1871.

A negative premium times nothing, and expensive markets can stay expensive for years. It does mean each new basis point on the 10-year weakens the case for owning the median stock, which is what the breadth numbers show. And the Fed told us on Wednesday that it has more basis points in mind.

Individual investors are losing their fear too early. Bears in the AAII survey dropped from 53.3% to 48.1% and bulls climbed from 28.8% to 32.7%, all on a Nasdaq record carried by a handful of giants. Meanwhile 300 stocks sit at a 52-week low.

🚨 Sector Rotation

Since Wednesday, no sector has a majority of its stocks above the 50-day average.

Energy was the last one standing. A week ago 58.9% of its members were above trend, two weeks ago 80.7%. On Friday it was 27.9%. US and Iranian negotiators held indirect talks at the UN in New York, and Iran put forward a plan to reopen the Strait of Hormuz within seven days. WTI fell 7.8% to $92.44, with every close of the week under $100. Positioning was light going in: money managers held 102,000 net long WTI contracts on September 22, about a fifth of their January 2018 record of 484,000. So the drop came from the news, and a failed deal would find few sellers left.

Two weeks ago I called energy a bet on a strait that stays shut. This week the market priced a strait that could open, and it sold the barrel, the refiner and the boat together: Valero -6.3%, Marathon Petroleum -7.4%, Frontline -7.2%. In oil and gas drilling, 80% of the names were above their 50-day average a week ago and none of them are now. The sector that offset the damage from rates has stopped offsetting it. The majors held better: 67% of integrated oil companies still trade above their 50-day average, Exxon lost 1.8% and Chevron 2.4%. They earn on the whole chain, from the well to the pump, and a lower barrel costs them less than it costs a driller.

Chips took its place. The share of semiconductor stocks above their 50-day average went from 41% to 66% in a week, and the SOXX semiconductor ETF gained 7.4%. AMD rose 12.7% and crossed $1 trillion in market value on Monday. Meta gained 11.3% the same day after Wells Fargo raised its target, and 12.9% on the week. Communications rose 1.9% on the week, and Meta did most of the work: Alphabet lost 1.6% and Netflix 0.9%.

Technology is now the strongest sector, with 44.5% of its members above trend. That is still under half, and it is enough to lift the index because the names that rose are the largest ones. Strong 30-day momentum now survives mainly in two sectors of the S&P 500, 14.5% of technology names and 14.3% of energy names. In utilities, staples, real estate and materials, not one member has it.

The themes page tells the same story basket by basket. Semiconductors gained 7.3% on the week, quantum computing 6.1%, humanoid robotics 5.9% and memory 5.8%. Solar lost 4.5% and defense tech 2.3%. The money went to the AI baskets and left solar, a business that runs on cheap financing, in the week financing got more expensive.

At the other end sit the groups priced off the 10-year. Utilities lost 3.9% and only 8.5% of their members hold above trend. Mortgage REITs and regulated electric utilities lead the list of new lows. In mortgage finance, not one of the 11 stocks I track holds above its 50-day average. A utility pays a dividend that competes with the Treasury coupon, so each basis point on the 10-year makes it less worth owning.

The weakest industries over 20 sessions are uranium, mortgage finance, insurance brokers, biotechnology and precious metals miners. Most of that list lives on the price of money. A mortgage lender funds itself at that price, and a biotech discounts cash flows that sit years away with it.

One group outside AI keeps making highs. Diagnostics & Research leads the new-highs list, and 75% of the 36 names in that industry hold above their 50-day average. The lab-equipment move I could not explain a week ago kept going: Danaher gained 6.0%. I still have no news story for it, and a move this steady in a group this broad usually has a buyer with a reason. Inside health care the split is sharp. Biotechnology, 404 names, has only 25% above trend and trails the S&P 500 by 13.9 points over 20 sessions. The buyer pays for the tools and sells the drug bets.

📉 Volatility

Fear moved to the bond market this week, and stock options barely noticed.

The MOVE index measures how much traders expect Treasury prices to swing. It went from 80.6 to 104.6 on Thursday and closed the week at 96.0. The VIX, the same measure for the S&P 500, went from 14.81 to 14.87.

That gap says where the risk sits. Bond traders now pay for protection against a 10-year that keeps climbing. Stock traders do not, because the index kept rising on a handful of names. A VIX near 15 prices a move of about 1% a day for the S&P 500. If yields keep rising, stocks have to catch up with bonds, and a VIX this low says that repricing has not started.

Oil shows the other kind of fear. WTI fell 7.8%, and the OVX, its volatility index, rose from 50.4 to 55.1. A price usually gets calmer as it falls. This one got more nervous, because traders buy protection on both sides. A deal on Hormuz sends the barrel lower, a failed one sends it back above $100, and nobody knows which comes first.

The implied volatility rank compares what options cost today with their range over the past year: 0 is the cheapest, 100 the most expensive. Options on TLT, the long Treasury fund, sit at 96. XLE, the energy fund, sits at 47. SPY sits at 15, QQQ at 12 and Nvidia at 2. Insurance costs the most where the damage happened, and the least on the index that made a record. If you want to hedge a stock portfolio, this is when it costs the least.

The Nasdaq rally was bought with calls. The put-call ratio on stocks fell to 0.64 on Monday and Tuesday, then went back to 0.80 on Wednesday, the day the 10-year crossed 5.1%. The VXN, the volatility index of the Nasdaq-100, rose from 19.29 to 20.87 while the index gained 3.3%. Implied volatility usually falls when an index rises. When it rises with it, buyers are paying up for upside, and a rally bought that way needs new buyers every week to hold.

The dealer map shows how the index got through its ceiling. A week ago the ceiling on SPY, the strike where dealers hold the most calls, sat at 770, and the floor at 753. SPY closed above 770 on Monday, and the ceiling moved up to 785. Dealers who sold those calls have to buy SPY as it rises to stay hedged, so their buying pushed the price through the level instead of stopping it. That is why I read the walls as this week's levels only.

Dealers are still short gamma on SPY between 750 and 785, so their hedging adds to moves in both directions. On QQQ they are long gamma between 700 and 760, and their hedging cushions the Nasdaq-100. Small caps sit in short gamma between 280 and 290, with no cushion. It is the same split as the rest of this letter: the largest names have support under them this week, and the rest of the market does not.

💱 FX

The dollar rose with US yields. The yen fell four days, then Tokyo’s warning bought it one.

The dollar index gained 0.8% to 101.04. With the 10-year above 5% and another Fed hike priced in, holding dollars pays more every week, and the euro slipped to 1.139.

After the Bank of Japan raised rates on September 18, the yen fell four sessions in a row, from 156.87 to 158.84 to the dollar on Thursday. Ueda's press conference first drew yen buyers, and the move reversed. On Thursday Tokyo repeated its warning about the currency, and on Friday the yen gained 1% back to 157.18. So the week ended flat, but only because of one day of words from Tokyo. A carry trade funded in yen gets more attractive when US yields rise faster than Japanese ones, which is what happened this week.

Over one month the yen is the only major currency that gained on the dollar, +1.4%. Every other one lost between 2.0%, the Canadian dollar, and 5.0%, the New Zealand dollar. Over the week they all gave ground: sterling -1.1%, the euro -0.8%. The month carries the run into the Bank of Japan hike. The week carries a Fed that says it has more hikes in mind.

Last week I wrote that the unwind risk was off the table until the yen turns. It has not turned. The variable to watch now is an intervention from Tokyo, which would lift the yen in hours and force the carry trade to close in the same hours.

Gold futures fell 2.4% to $4,320. Gold pays no coupon, and a Treasury paying above 5% makes it more expensive to hold.

🔥 Trade of the Week:

Cooper makes contact lenses, and runs a second business in fertility and women’s health. On September 9, after the close, it gave investors two disappointments at once: a lower outlook for the year, and the news that it would keep that second business after a strategic review.

• Quarterly revenue: $1.07 billion, 1% more than a year ago, short of the $1.1 billion analysts expected

• Revenue outlook for the year: cut to $4.24 billion at the midpoint, from $4.30 billion

• Adjusted earnings still expected: $4.53 a share

• The next morning: the stock opened 18% lower, on 9 times its normal volume

Then the people on its board started buying. Three directors bought about $1.9 million of stock in the open market, between $53.18 and $54.93. My Insider Buys screener has flagged it every session since September 15, and my Bottom screener since September 14.

The price now asks very little of the company:

• About 12 times the $4.53 it still expects to earn this year

• 38% under its 52-week high, for a product customers buy again every month

• The analysts’ average target is $66.21, 20% above Friday’s close of $55.38

• Options are cheap, an implied volatility rank of 15/100: nobody is paying up for a rebound yet

The volume profile tells the rest. Since the gap, the stock has built a new base: last week most shares traded between $53.72 and $55.19, and the most traded price was $54.09. On Thursday buyers pushed to $56.64 and sellers refused it. On Friday the stock dipped to $55.02, held above the top of the base and closed at $55.38. Buyers now defend the top of the base, where a week ago they only defended its bottom.

Above $56.64 sits the gap, up to $62.24, the low of September 9. Not one share has traded there since. No trading means no one bought there and waits to get out, so a break of $56.64 can travel fast. The real wall stands higher, between $73.70 and $77.26, where most shares traded in August. The buyers of the summer sit there on losses of 25% to 28%, and they will sell to get out even.

This is a base trade under an old wall, so I trade it at half size, and the plan depends on what the stock does first:

• If it pulls back to $55.19, the top of the base: I buy half. That is where Friday’s dip found buyers

• If it falls to $54.09, the most traded price of the base: I buy the other half

• If it closes above $56.64 before any pullback: the base has broken up, and I buy a quarter there. From that price the first target pays only 1.0 times the risk, so the size stays small

• Stop: a close under $51.01, the gap day’s low. Nothing below it held the stock, so the exit may slip

• Target 1: $62.24, the top of the gap. 1.7 times the risk from $55.19, 2.6 from $54.09

• Target 2: $73.70, the bottom of August’s value, where the trapped buyers start to sell. 4.4 times the risk from $55.19

More filings from the directors would add to the case. What kills it is a second cut, and the next report is due around December 2, after the stop has had its chance to work.

See you next week,

Daniel

P.S. The app is the daily version of what you just read, the same boards and screeners I run every morning before I trade. It now comes with a free 7-day trial.

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Disclaimer

This newsletter is for educational and informational purposes only. It is not financial advice.

The content reflects personal opinions shared publicly as a journal. Trading stocks, options, futures, or any financial instrument involves significant risk. You can lose your entire investment. There is no guarantee of profit.

The author is not a registered investment advisor, broker, or financial professional with any regulatory authority including the SEC or CFTC. Always consult a licensed financial advisor before making any investment decisions.

By reading this newsletter, you accept full responsibility for your own trading and investment choices. Past performance does not guarantee future results. Markets are unpredictable.

Screenshots are courtesy of TradingView, VixCentral, and other platforms with which the author has no affiliation. Information shared may contain errors or become outdated quickly.

This content is the intellectual property of the author. Copying or redistributing without permission is prohibited.

By continuing to read, you acknowledge and accept these terms.

On Wednesday the Fed raised rates for the first time since 2023, 25 basis points to 3.75 to 4.00%, on a 12 to 0 vote. Kevin Warsh said inflation had been too high for too long, and 16 of the 18 officials around the table wrote down at least one more hike this year. On Friday, in Tokyo, the Bank of Japan followed with its own 25 basis points, to 1.25%, on a split 7 to 2 vote.

Nothing that landed between the two meetings argued for a pause. August retail sales came in at +1.2% against +0.8% expected, jobless claims fell to 196,000, and the Philadelphia Fed’s factory index printed 37.8 against 30.5. So Polymarket now prices 84% odds of another hike in 2026, and only 8% odds of a recession this year.

The S&P 500 closed the week down 0.1%. That is the calmest reaction to a hike I have seen, and it hides what happened to most members of the index, whose week was a very different one. The selling I described in my last letter went straight through the meeting, and the one group of stocks that got bought with both hands is the fleet carrying Gulf crude around Africa. The members of the index are paying for the hike while the index itself has not, and the trade is where the money went to hide.

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📊 Market Health

The hike went straight to the members of the S&P 500.

A rate hike lands on the companies that borrow, and the giants at the top do not. So one hike made two markets this week. The S&P 500, where each stock counts by its size, lost 0.1%. The equal-weight version of the same 500 stocks, where each one counts the same, lost 1.2%. The few giants that rose offset the hundreds that fell.

The damage shows in the breadth table. On Friday 3,461 stocks fell against 1,855 that rose, 318 made a 52-week low, and down volume ran twice up volume. The TRIN, the gauge that spikes when sellers panic, stayed near 1.0 all week. Broad, calm selling is how a market reprices, and it takes more than a week.

My health score, a 0 to 100 read of how many stocks hold their trend, fell from 36 to 11, and seven of the 10 readings inside it sit at zero. The two that hold are the calm of the selling and the sector count, and the sector count holds because energy does. Four weeks ago the score was 69.

The S&P 500 can rise because most of its stocks rise, because short sellers are forced to buy back, or because a handful of giants carry it while the rest sinks. The chart below shows which one this is. On August 13, when the S&P 500 closed at its all-time high, 57.4% of stocks were above their 50-day average. On Friday 29.8% were, and the S&P 500 was only 1.9% lower.

Under 25%, selling has usually run its course. Wednesday touched 26.4%.

The regime reads defensive, the kind of market that has punished buying until breadth turned, and the chairman gave no reason to expect the turn from his side.

“The plain fact is that inflation is too high and has been for too long.” Kevin Warsh, September 16.

🚨 Sector Rotation

Technology leads the rotation graph while energy is the last sector with a majority of members above trend.

On my rotation graph technology is alone in the leading quadrant, energy and health care sit in the weakening one, industrials is the only sector improving, and the other seven lag. Against the S&P over 20 days technology is +3.7, energy +1.0, communications +0.2, and everything else negative down to utilities at -6.0. Yet the only sector where a majority of members still hold their 50-day average is energy, at 58.9%, down from 80.7% a week ago.

Materials lost its majority this week, 52.4% to 44.5%. Technology leads on price with 40.3% of its members above trend, the sector version of the whole market.

The ETF sheet shows where the hike landed. Utilities lost 3.0% on the week, 9.7% on the quarter, sits 14% under its 52-week high and exactly at its 52-week low, RSI 33. Real estate has 6.5% of members above trend. Both are priced off a 10-year that closed at 5.006% on Wednesday.

Financials went from 40.9% to 26.9% of members above trend, with BAC down 7.9%, because a hike that lifts the 2-year about 10 basis points and the 10-year 2 basis points flattens the curve a bank lends on. My app also says cyclicals beat defensives by 1.6 points over 20 days and reads it as risk appetite. I read it the other way: utilities, real estate and staples are bond proxies, the bond just repriced, and defensives are being sold for the same reason banks are.

Next to energy, the money moved from the barrel to the boat. Marine shipping is the second strongest of the 120 industries I track, up 2 places in a week and 9 in a month, with 83% of its 23 names above trend. That group is containers and dry bulk, and the crude tanker owners, listed under energy, did even better: Nordic American +10.6%, Torm +9.0%, International Seaways +7.2%, DHT +5.8%. Clarksons Research counted why on September 16.

Traffic of VLCCs, the largest crude tankers, through Bab el-Mandeb is 80% below the second quarter. About half of Red Sea crude now moves through the Suez pipeline system and then around the Cape of Good Hope instead, and 15% of the supertanker fleet sits off Oman doing ship-to-ship transfers. Longer routes and idle ships remove capacity at the same time, so by Friday September 12 the average VLCC earned $451,000 a day, up 68% in a week, a record. Tanker owners are paid by the mile, and this week the miles went up.

Then there is health care, which I cannot explain. It went from the worst sector at -3.6% to the best at +1.8% in a week, and the move came from lab equipment: TMO +6.8%, Agilent +6.5%, Danaher +5.8%, and Quest Diagnostics at a new 52-week high in a week with 318 new lows. My Breakout screener, built to catch stocks pushing through a ceiling on strength, has 9 biotech or genomics names in its top 10, with 10x Genomics +16% and Twist Bioscience +23% in the five sessions to Thursday.

The sector’s breadth barely moved, 33.4% above trend against 33.7% a week earlier, so this is a cluster, and a cluster that size has a cause. A rotation into safety does not lift a genomics tools company 16% in a week. Something else is buying, and I do not know what yet.

The megacaps themselves are not one block anymore. In the table of the largest names, Alphabet, Meta, Nvidia and Apple read strong, Meta up 21.9% on the month with an RSI of 77.9. Microsoft and Amazon read neutral, both more than 10% under their 52-week high. Netflix reads broken, down 7.2% on the week and 42.5% from its high.

The index stands on four names, and MU, up 4.2%, gave the Nasdaq-100 its 0.9% week. The SOXX semiconductor ETF fell 5.6% on Monday after Dario Amodei's weekend essay calling on AI labs to slow down, and recovered by Friday.

📉 Volatility

The Fed hiked and the VIX finished the week lower than it started.

The VIX went from 15.84 to 14.81, with a Wednesday close at 17.71 and a high of 18.94 on the decision. VIX9D fell 23% on Thursday and another 8.4% on Friday to 12.27.

Options carried a premium for the meeting, the premium bled out in 48 hours once it passed, and $7 trillion of options expired on Friday, the second largest triple witching on record according to Citadel Securities. That leaves the VIX lower than on 93% of the days this year, in a week when 318 stocks made a 52-week low. Index protection is cheap at the moment most stocks need it.

The table in the app that ranks the volatility products shows the same thing. SVXY, which profits when the VIX falls, reads strong and is up 33.7% over six months. UVXY, which profits when it rises, reads broken and is down 64.2% over the same six months, 75% under its 52-week high.

Every VIX product in that table reads broken except the one that sells volatility, and short-volatility trades that crowded unwind fast.

The options sheet puts a price on that. VIX options carry an implied volatility rank of 9/100, which my sheet labels vol cheap, and the put-call ratio on them is 0.54: buyers are paying for VIX calls, a bet that volatility rises, near the cheapest price of the year. The strike where the most option money expires, max pain, sits at $20, 35% above the spot.

The one product that reads vol rich is SVIX, the short-volatility fund, with a rank of 87/100: the market charges a premium to insure the trade that is short volatility and discounts the trade that is long it.

On the index side the sheet reads hedged. SPX options ran a put-call ratio of 5.0 on Thursday and 4.3 in open interest, and SPY’s own options sit at an implied volatility rank of 5/100 with a put-call of 2.4 in open interest. Hedged and cheap at the same time means holders bought insurance and the insurers did not raise the price.

Somebody is wrong. On September 11 I flagged the same gap, and the index fell to 749.60 within three sessions.

Where the insurance is expensive says who is scared of what. The median implied volatility rank by sector is 52/100 in energy and 17/100 in technology. The market pays up for protection on the one sector where a majority of members still hold their trend, and gives protection away on the sector that carries the index with 60% of its members below their 50-day average.

Put buyers kept their positions through the week. The put-call ratio across every US options exchange went from 0.76 on Monday to 0.82 on Wednesday and 0.80 on Thursday, a week after it printed 0.69 with the S&P 500 at its high. Protection was added into the meeting and kept after it.

Wednesday’s low on SPY was 749.60, inside the 770 to 745 zone I gave you a week ago as the range dealers would defend, and the bounce came from there. The put wall has moved up, from 745 to 753, while the call wall still sits at 770, and SPY closed at 761.69, 1.1% under one and 1.2% above the other. Dealers are short gamma across the band, which means they sell into a decline and buy into a rally instead of leaning against them. A 2.2% band with dealers who amplify on both sides means the first wall that breaks decides the next 5%, and under 753 the dealer map shows two more floors, at 750 and 745, before the index is in open air.

💱 FX

The yen gave back a week of gains in five sessions, through a Bank of Japan hike.

The yen, the strongest currency of the week ending September 11 at 153.55 to the dollar, closed this one at 156.86, a 2.1% fall, and the drop ran straight through Friday’s hike to 1.25%. The vote was 7 to 2, the two dissenters wanted no hike at all, and Governor Ueda committed to nothing further. A hike delivered with a split board and no path reads as the last one.

The Fed, two days earlier, had shown most of its committee wanting more, so the expected rate gap that funds the carry trade widened in a week when both banks hiked 25 basis points. Every trade funded in yen got cheaper to hold, and that is part of why the Nasdaq-100 finished the week up while most of the market finished down.

“That depends on how price conditions develop. There could be various possibilities. We shouldn’t rule anything out.” Kazuo Ueda, asked whether the Bank could hike by 50 basis points or at back-to-back meetings, September 18.

My FX sheet now carries the futures positioning from the weekly Commitments of Traders report, and it explains why the yen could not hold its rally. Speculators were net long yen futures at 22% of open interest going into the meeting, a bigger bet on the yen than in 80% of the past three years. They had bought the hike in advance.

When the hike came with two dissents and no path, there was no one left to buy, and the longs sold into it. The same report shows them long the dollar index at 24% of open interest, so the dollar had buyers waiting on the other side. The sheet tags 7 pairs risk-off and 5 risk-on, all four yen crosses in the first group, and reads the kiwi as the clean one: down 3.9% on the month with an RSI of 17.

That closes, for now, the unwind I was watching. In July 2024 a yen rally met a Bank of Japan hike and the S&P lost more than 8% in three weeks from its July 16 peak. This time the rally met the hike and reversed, so the unwind risk is off the table until the yen turns again, and with the yen longs now cut back, the next rally would start from a cleaner position.

The dollar index rose 1.1% to 100.22 and took the exporters’ currencies down with it, the Korean won 3.1% on the week. The franc fell 0.6% against the dollar on the week and 2.8% on the month. Gold futures gained 1.2% to $4,419, still 17% under their January record, though gold’s 60-day momentum reads +5.6% and my haven gauge calls it flight to safety.

My risk-off recipe needs the franc rising while stocks fall and volatility spikes, and this week stocks fell, the franc fell with them and the VIX closed lower, so one condition of three. A hike pays whoever holds dollars, so the dollar is the shelter this time, and a franc falling with stocks instead of against them says the market is pricing a rate problem, and nothing worse yet.

🧠 My Take

Individual investors already believe the break: 53% call themselves bearish in the AAII survey against 29% bulls, a gap more negative than in 95% of weeks since 1987, and the hedge funds’ futures books are net short 341,000 E-mini contracts. That much fear with the index 1.9% from its record is fuel for the relief case and confirmation for the grind case at the same time.

Grind, 45%. A flat index over falling members, for a fourth week. SPY stays inside 753 to 770, new lows run above 300 a day and the health score stays under 20. The tell is a SPY that holds 753 while the share of stocks above the 50-day fails to reclaim 35%.

The break, 30%. Two closes under 753, then under Wednesday’s 749.60, with dealers short gamma selling into it. The trigger is the 10-year back above 5% into Micron’s report on September 30 or the Fed on October 28.

Relief, 25%. Bears at 53%, the VIX at 14.8, VIX calls near the cheapest rank of the year, and dealers who chase rallies as hard as declines. That takes SPY through 770 toward the August 13 record at 777.88. It only counts if the members come: three sessions of equal-weight over cap-weight and 40% of stocks back above their 50-day.

🔥 Trade of the Week:

SDRL owns drillships and rents them to oil companies on contracts that run for years, so it is paid by the contract, not by Friday’s barrel. The tankers got the headline this week but the part of energy that has not run is the rigs. Oil and gas drilling moved from 21st to 14th of the 120 industries I track in a month and Seadrill sits 14% under its May high. Transocean agreed in February to pay $5.8 billion in stock for Valaris, so the rig owners are buying each other while the rigs are scarce.

The second quarter, reported August 10, is why the group re-rated. Revenue was $449 million, adjusted EBITDA $144 million, and the fleet was working 95.5% of the time. Seadrill raised its 2026 outlook for the second time, to $420 to $450 million of EBITDA from $370 to $420 million, added about $200 million of backlog since May and holds $2.9 billion of contracted work against $390 million of net debt. It bought back about $20 million of stock in the quarter and extended the program to December 31. 9 analysts cover it with an average target of $53.33, 12% above Friday’s close of $47.49, and the filings dated August 14 show AQR up 32.6% and Two Sigma opening a position, while Adage cut 43.8% and Balyasny 71.1%. The quants added, the macro funds left, and the stock went nowhere over 20 sessions, down 0.8%.

My Pullback screener has flagged it every session since September 10.

Since the start of August most of the volume traded between $45.45 and $48.71, with the busiest price at $47.16. Friday closed at $47.49, right on it.

The push to $51.08 on September 2 was sold within the week. The shares came back to the middle of that zone and have stayed there since.

So I buy inside the zone, in two halves. The first at $47.16, the busiest price since August. The second at $45.90, just above the bottom of where the shares changed hands.

Below $45.45 the volume is thin down to the August 5 low at $41.37. A close under $45.00 means the rotation failed and I am out, and that exit will slip.

First target is the September 2 high at $51.08. Second is the May 20 high at $55.47, the last price the spring buyers accepted. From the first entry that is 1.8 times the risk to the first target and 3.9 times to the second.

What kills it is the same thing that kills the tankers: a ceasefire and a barrel back at $80.

Sizing: usual size, in two halves

Entry: $47.16 first half, $45.90 second half

Stop: a close under $45.00

Target 1: $51.08 · Target 2: $55.47

See you next week,

Daniel

P.S. The app is the daily version of what you just read, the same boards and screeners I run every morning before I trade. It now comes with a free 7-day trial.

Free trial

Disclaimer

This newsletter is for educational and informational purposes only. It is not financial advice.

The content reflects personal opinions shared publicly as a journal. Trading stocks, options, futures, or any financial instrument involves significant risk. You can lose your entire investment. There is no guarantee of profit.

The author is not a registered investment advisor, broker, or financial professional with any regulatory authority including the SEC or CFTC. Always consult a licensed financial advisor before making any investment decisions.

By reading this newsletter, you accept full responsibility for your own trading and investment choices. Past performance does not guarantee future results. Markets are unpredictable.

Screenshots are courtesy of TradingView, VixCentral, and other platforms with which the author has no affiliation. Information shared may contain errors or become outdated quickly.

This content is the intellectual property of the author. Copying or redistributing without permission is prohibited.

By continuing to read, you acknowledge and accept these terms.

Core CPI came in hot on Friday September 11 and a hike at Wednesday’s Fed meeting went from a coin flip to 80%. (on polymarket)

The S&P 500 lost less than 1%. The equal-weight version of the same index lost 1.9%, nine of eleven sectors trade below their trend, and oil is back above $100.

At Friday’s low, put buyers came in size and paid close to nothing for protection. That combination, quiet cap-weighted index and cheap insurance under heavy demand, is the tension going into Wednesday’s Fed decision.

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What is inside:

• Twenty-six screeners. They run every night on 12,000+ US stocks: pullbacks, breakouts, bottoms, squeezes, insider clusters, unusual options flow.

• Sectors and themes. Which corners of the market lead and which lag against the S&P, which way each one is turning, and twenty-six themes tracked basket by basket: AI agents, defense tech, drones, critical minerals, the power grid, fintech.

• Where the market stands. Breadth, rates and inflation, the dollar and the curve, commodities, crypto, and the sentiment gauges, all rebuilt after every close.

• Who is buying. 13F books from 100+ funds, activist stakes, Congress disclosures, insider clusters, buybacks, federal contracts.

• Your desk. Build your watchlist, set your price alerts, analyze your positions, keep your trading journal, and size your next trade.

• The Academy, our private trading course. 35 lessons that take you from reading a chart to sizing a trade and a guide to every page in the app.
  

Try the app free for 7 days

📊 Market Health

The hike is already in the price of most stocks. It is not yet in the price of the index.

A rate hike hits the borrowers first. That means the middle of the S&P 500, the companies with floating debt and a refinancing due next year. The ten largest names carry no net debt and fund themselves. So when the 2-year yield jumps to 4.63% in a week, the typical member reprices and the index barely moves.

My health score fell to 24 on Thursday and closed at 36, while the cap-weighted S&P sits 1.8% from its record. Only 35% of stocks hold above their 50-day average. At the July low that gauge sat near 41% with the index close to 5% lower, which means the members are weaker today than at the July bottom while the index trades at the top. One of those two prices is wrong.

The momentum count adds a precedent. Only 61 of the S&P names, 12.4%, still carry strong 30-day momentum.

Which is how to read Friday. Three down sessions, core CPI at 0.3% against 0.2 expected, then 3,462 advancers against 1,783 decliners. That looks like a turn until you ask who was buying: the same people who had sold the outcome all week. A rally on bad news is a short cover, and a short cover says the market was positioned for this. It does not say the selling is done.

“While this summer’s PCE and CPI readings were better than expected, they do not tell me that underlying trends have meaningfully improved.” Kevin Warsh, Jackson Hole, August 28.

A chairman who did not trust the good readings has now been handed a bad one. What ends the correction under the surface is one thing I can measure: the equal-weight S&P beating the cap-weighted one three sessions in a row, because that is what money coming back to the members looks like.

🚨 Sector Rotation

Only energy is being bought. Everything else is being sold in the order a hike hurts it.

Two sectors hold a majority of their members above trend, down from nine in mid-August, and only energy went up: 81% of its names in uptrends while WTI closed above $100 for the first time since May. Energy is a bet on a strait that stays shut, and that bet does not care what the Fed does on Wednesday. That is why it leads a week when everything priced off the curve falls.

Inside it, refiners are the strongest industry I track, 52 points ahead of the S&P over sixty days. They buy crude that has trouble reaching the market and sell fuel that everyone still buys. The gap stays open as long as Hormuz does not, which makes it the one place a long book can hide from the meeting, and a poor foundation for an index recovery.

And on Friday the second door started to close. The Houthis took Mokha, the island of Perim and the rest of Yemen's Red Sea coast, which puts them on both sides of Bab el-Mandeb, the strait Saudi Arabia has been using to ship crude since Hormuz shut. The same day Riyadh closed its East-West pipeline, the line that carries that crude to the Red Sea, after strikes along its route. If the Gulf's crude cannot leave by the east and now struggles to leave by the west, the crack spread does not normalize next year, it widens, and every refiner outside the region earns it.

Real estate last, utilities next, the two groups priced off a 10-year that went to 4.97%. Then financials, which left the leading quadrant because a hike into a flat curve is the one rate move a bank cannot earn on. Then health care, down 3.6%, the worst line on the table, even though people buy it for safety. When the safe sector trades like a cyclical, the selling is about the price of money, not about growth.

Technology is what remains, with 40% of its members above trend and enough weight to replace energy. So the index stands on a sector where six names in ten are in a downtrend, and holds because Nvidia, Microsoft and Apple hold. The day one of the three cracks, there is no second sector behind it. That, more than breadth, is the risk into Wednesday that a VIX at 15.8 does not price.

📉 Volatility

The options market is hedged in the right places, and it paid a discount for the hedge.

The VIX at 15.8 says calm. VIX3M/VIX at 1.18 says three-month protection costs more than one-month, the normal shape of a market that expects no shock. The SKEW, the price of crash protection, fell to 147 from 151.6 a week ago. Into the most important Fed meeting of the year, the crash hedge got cheaper.

That is not because nobody hedged. The put-call ratio on single stocks went from 0.69 a week ago to 0.875 on Thursday, the top 10% of the year. In four sessions the options market went from buying calls at the high to buying puts at the low, and where the puts went says what it fears: 16 puts for every call on financials, $11.3 million of it in a single October contract, the 56 puts, 3.4 per call on semiconductors, 2.2 on small caps, 2.1 on health care. Banks, chips, small caps, health care. That is a list of what a hike hurts, hedged in advance.

The hedge was cheap because implied volatility sits in the bottom 10% of its year on 206 of the 2,106 names I track, SPY included. The Nasdaq-100 moved at a 20.1% annualized pace over the past month and its options price 17.6% for the next one. The market is paying less for protection than the index has been moving, in the week the Fed decides.

Two prices cannot both be right, puts everywhere and volatility nowhere. Where it resolves is a level: dealers who sold that cheap protection dampen every move between 770 and 745 on SPY, and below 745 they have to sell stock to stay hedged, so the decline feeds itself and a 3% range becomes a 10% one.

💱 FX

US yields jumped and the dollar did not follow. That is the tell that something else is moving.

The 2-year went from 4.39% to 4.63% in a week and the dollar index closed flat near 99. Higher yields should pull money into dollars. The money went to the yen instead: dollar-yen fell to 153.55 from 156.25, the yen’s second straight week of gains and the strongest currency of the week.

The reason is a date. The Bank of Japan meets on September 17 and 18, the day after the Fed, and traders expect a hike there too. Two central banks raising rates in 48 hours means the cheapest funding currency in the world gets more expensive at the same moment as the dollar, and every trade funded in yen gets unwound at once. The last time a yen rally met a Bank of Japan hike was July 2024, and the S&P lost more than 8% in three weeks.

Positioning is smaller now and the Bank has already moved twice, so I do not expect a repeat. But the funding currency of the carry trade is 3% more expensive than three weeks ago.

💡 Trade Ideas

1. $PBF, the refiner

Refiners make money on one thing: the gap between what they pay for crude and what they sell gasoline and diesel for. That gap is usually $15 to $25 a barrel. In August it was near $69, because the Gulf’s crude cannot get out. PBF owns six refineries and the pipelines that feed them, so almost all of it drops to earnings. Last quarter it made $6.22 a share when analysts expected $3.49.

Analysts still have a target of $67.62 on it, under Friday’s close of $78.30. Their
targets have not caught up with a quarter that beat them by 78%. After what the Houthis did on Friday, I think the gap gets wider before it gets narrower.

The chart is the reason I am not buying Monday. Friday ran to $82.61 and closed at $78.30, a big wick on top. Somebody sold that spike hard, and one of the sellers was the Slim family, $24.8 million worth over two days. That is a reversal candle, so I want the pullback, not the breakout.

There are three levels on the way down, and I want a piece at each. Last week’s ceiling at $76.39, where the stock spent most of last week deciding. The month’s high-volume node at $73.13, a dense zone where price slows down rather than passes through. And the month’s busiest price at $70, the orange line, where most of this month’s shares changed hands. A third at each, average price around $73.30.

One caveat on the last third. A stock that falls back to $70 after a week like this one is telling me the spread story is fading, so I only take that piece if Hormuz is still shut when it gets there. Under $66 is the bottom of where the shares changed hands this month, and the volume below it is thin because July’s rise was vertical, which means a break there will not be orderly. A close under $66 and I am out, whatever the news. First target is the high at $82.60. Second target is the height of this month’s value, about $12, added to its top: $90. A Hormuz ceasefire kills the spread in a day, so half my usual size.

• Sizing: half the usual, in three thirds

• Entry: $76.40, $73.10, $70.50

• Stop: a close under $66

• Target 1: $82.60 · Target 2: $90

2. $MU, memory chips

Memory is the only AI basket on my themes page that went up this month, +3.3%, and it was the strongest on the week at +6.8%, while drones, batteries and photonics all lost 16% to 19%.

The reason is simple. Amazon raised its 2026 spending last month to $220 billion from $200 billion, and its CEO said the extra $20 billion is the price of memory going up.

“The higher cost of memory is pushing this number up from our prior estimate of about $200 billion. Even at that amount, we will not have enough capacity to meet all the demand we have in 2026, and I believe this dynamic will also be true in 2027.” Andy Jassy, Amazon’s second-quarter call.

When your biggest customer says your product got expensive and he is buying more anyway, that is the trade. Micron sells the product. Two things to know: it reports around September 21 and chips as a group are weak right now, so this is a leader in a bad sector.

Micron closed at $975. Most of last week’s shares traded between $919 and $965, with the busiest price at $932. So the stock is sitting just above where everyone bought it this month. I buy the dip back into that zone: half at $965, half at $932. Under $876, the last place buyers showed up before the August low, I am out. Targets are the September 9 high at $1,042 and then $1,214. Half the size before the report, half after, because a chip stock can gap either way on earnings.

• Sizing: half the usual, one half before the report, one half after

• Entry: $965 first half, $932 second half

• Stop: $876

• Target 1: $1,042 · Target 2: $1,214

3. $GDX, gold miners

Gold has gone down three weeks in a row. The miners have not: 90% of them are still above their 50-day average. When the miners hold while the metal drops, the market is saying the drop is a shakeout, not a new trend.

On Friday, $3 million of GDX calls were bought, struck at $101, expiring September 18. That is two days after the Fed. Whoever bought them is betting the Fed sounds like it is done hiking, real yields come down, and gold rips. Calls outran puts seven to three on the day.

GDX closed at $97.10, right at the bottom of where it traded last week, $96.66 to $100.27. This month’s busiest price is $101.66, which is why the calls are struck at 101. Below $96.66 there is almost no volume until $89.32, so if it breaks, it breaks fast.

I buy a first half at $96.70 and the second half only if it drops to $89.50. Under $87, the bottom of this month’s value on the chart, the August breakout failed and I am out. Targets are $101, then $104, then the old high at $117. If the Fed sounds hawkish on Wednesday, this one loses, so it is small.

• Sizing: a third of the usual

• Entry: $96.70 first half, $89.50 second half

• Stop: $86.90

• Target 1: $101 · Target 2: $104 · Stretch: $117

See you next week,

Daniel

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One feature today, the newest in the app: the options stat sheet. One line per name, every night: realized and implied volatility, put/call on the day’s volume and on open interest, max pain. About 2,100 names with real options flow, the S&P 500, the ETFs and the index options. It comes from a table I have followed for years.

It is live now in the app for paid subscribers.

Link: app.thephilosopherinvestor.com/options-stats.

How to read it

HV 30d, IV 30d. How much the stock moved over 30 sessions, and how much its options charge for the next 30. Implied above realized for months: the options are dearer than the stock’s movement justifies, the seller’s edge. The trap is earnings: implied climbs into the report and collapses after it, so a call bought there can lose even when the stock moves your way.

HV rank, IV rank. The same numbers placed in the name’s own range, 0 to 100. HV rank uses the past year; IV rank uses the implied history we hold, which starts in March for most names and fills toward a year every night. Under 10 is cheap for that name, above 80 is dear. The table’s rule: buy volatility only under 10, sell it only when it is high and already turning down. Never on the way up.

Corr S&P. The 30-day correlation to the index. Near 1, the index moves the name and hedges it. Near 0, the name has its own story.

P/C vol. Today’s put volume over call volume. One day is a mood, and one large trade can push it anywhere. The change is the signal: 0.8 to 2 means something is wrong, five days rising means somebody knows something.

P/C OI. Put open interest over call open interest, the positions still alive. Slow, and the one that counts. From 0.8 to 1.8 is significant. Above 3 with volume above 2 is the sheet’s most bearish screen. Above 4 is extreme hedging. Under 0.21 with volume under 0.5 is the most bullish: nothing but calls.

The pattern the table exists for. Volume put/call rising five days, open-interest put/call rising, implied vol picking up with its rank past 80, short interest rising if you can see it. Together, they have come before failed trials, pre-announcements, resignations, accounting problems.

At the extremes, read the other way. Put/call moves with the VIX, it does not lead it. Its use is as an overbought and oversold gauge: a put spike on a rally day, with puts traded by the million, is more often a bottom than a top. The protection has already been bought.

Max pain, MP gap. For the nearest expiration, the strike where the open calls and puts together are worth the least, and the distance from the last price. Heavy open interest tends to pin there into the last days. A pull, not a target.

Read, and day by day. One word per row from the thresholds above, strict so it stays rare. Click a name: the same sheet one line per session, the chain by expiration with max pain, implied against realized on a chart. That is where the trend lives.

Ask it in plain words

The box at the top fills the filters for you. For example:

• “cheap vol tech names with heavy calls”

• “sector ETFs puts heavy”

• “IV rank above 80 and down big today”

  ---

  Want access? It is in our app, included in the paid Substack tier, with a 7 day free trial.

  Try the app free for 7 days

Daniel

The last time I wrote to you about the app was July 16, when Congress trades landed. Since then we shipped more than a hundred updates.

Here are the ten that matter most, biggest first. Every clip is the live app.

1. NEW: the chart, rebuilt

A full charting workspace on every name. 80+ studies, drawings saved per timeframe, ten layouts, replay, formulas.

A few use-cases to get you started:

• Turn on Value zones: the volume profile draws the value area and the point of control. Support and resistance, no line to draw.

• Turn on Dealer walls: the strikes where option hedging piles up. The ceiling and the floor of the week, on the chart.

• Draw a trend line, right-click, make it an alert. Add a condition: RS rating above 90, or a close above the 50-day. It fires only when the break comes from a strong name.

• Replay a past window bar by bar and test your entry.

• Missing an indicator you use? Reply to this email. We add it.

2. NEW: Market Wizards, as screens

The 74 traders from Jack Schwager’s five books, each turned into a screen that runs every night.

• Minervini’s Trend Template: price above the 50, 150 and 200-day, stacked in order, near the high, RS in the top quartile.

• Paul Tudor Jones, Ed Seykota, Kovner, Druckenmiller, O’Neil, Dalio, Thorp, Greenblatt: one card each, the rules, tonight’s names, and which other wizards’ screens each name also clears.

• Published rules where the trader wrote them. Our reading where he did not. The card says which.

• At the top: the consensus, the names that clear several masters’ screens at once.

3. NEW: any list as a wall of charts

Pick a screener or one of your lists. Every name becomes a chart.

• Each chart shows six months of daily candles, with volume under it. Two to four charts per row.

• Scroll, stop on the ones that look right, tick them, send them to a list.

• Thirty charts in one minute, on one page.

  ---

Start your 7-day free trial. Then $20 a month or $200 a year.

Upgrade to paid

4. NEW: new highs and new lows, by sector and industry

Every stock at a 52-week high or low tonight, grouped by sector or by industry.

• Which sectors print the highs, which print the lows, with the tickers behind each count.

• Three months of history under the bar: is tonight normal or rare?

• Filter by liquidity: all stocks, $10M a day, $50M a day.

5. The dealer map, second version

• Gamma or delta, one toggle.

• Dealer gamma charted on SPY, QQQ and IWM over the last three months.

• The cushion through time: the share of option books in positive gamma. Thinning line, thinning shock absorber.

• NEW: the gamma grid, strike by expiration. See which expiry carries the wall and when it rolls off.

6. One stock, the full file

New on every name page:

• Premium drift: three months of call premium against put premium, session by session, with open interest through time under it.

• Capital structure: cash, debt, net debt, enterprise value, and the debt maturity ladder from the last 10-K.

• The competitive moat, argued from the filed facts. Five threat scores, a radar, plain English.

• What growth the price already pays for, solved backwards from the last close.

• Record volume flagged the day a name trades more shares than ever in our records.

7. The screeners, sharper

• Type it in plain English: “cheap tech with insider buying” lands on the exact filters, as chips you can remove.

• A strength rating on every row of every screener.

• An earnings filter on every screener: about to report, just reported, neither. Every date says before the open or after the close.

• NEW sheets: options stats (realized vs implied vol, put/call, correlation to the S&P) and performance (the whole market ranked over six windows).

• NEW: Scatter. Any two fundamentals metrics, the biggest 250 names or your watchlist, with the fit line.

• Insider dollars over 90 days and distinct insiders buying, as columns and as a filter.

8. Where the volume hides

Four NEW alt-data pages, and the same signals on every name page.

• Dark pool: the share of volume printed off-exchange, and how much of it was sold short, with the trend.

• Government contracts: who just won federal money, ranked by dollars, with the agency.

• Activist filings: every fresh 13D, a 5%+ active stake.

• Retail attention: the jump in a name’s Wikipedia traffic, seven days against the prior four weeks.

• Buybacks: ranked by shares actually retired, not programs announced.

9. The macro desk

• NEW Odds desk: what Polymarket and Kalshi price on a Fed hike, a recession, inflation and jobs. The 24-hour move, and the names most exposed to each question.

• NEW futures positioning: hedge funds, asset managers and dealers on S&P futures, ten years back, this week’s shift, the percentile.

• Short interest read the right way: days of volume to cover across the whole market, against its own range.

• Central banks on one table: Fed, ECB, BOE, BOJ, BOC, RBA, last move, spread to the Fed, plus the Fed balance sheet over five years.

• CPI, jobs, PCE, GDP and Fed days on the earnings calendar, next to who reports.

• FX and rates: the dollar, seventeen pairs, the full Treasury curve against a month and a year ago.

• Sector momentum breadth: per sector, how many names still hold a strong 30-day run, against the index.

10. The crypto radar

Crypto read like equities.

• Bitcoin and Ethereum: 7-day, 30-day, 1-year moves, fear and greed, dominance, how the coins trade against SPY and QQQ.

• Stress dials: funding percentile, sentiment streak, dry powder in stablecoins, majors above their 50-day, each against its own multi-year history.

• NEW: funding on the 25 biggest perpetuals, how crowded versus its history back to 2019, open interest with the one-day and one-week change.

• Movers over 24 hours and 7 days, tokenomics, a coin comparator, a coin map.

• Follow coins, set price alerts on them.

That is ten. The other are in the app, and every new one lands in the changelog the day it ships.

Start your 7-day free trial. Then $20 a month or $200 a year.

Upgrade to paid

Daniel

Two Sundays without a letter, so this one carries three weeks. I was on vacation in Mexico and the trip ran longer than planned, which is why you have not heard from me. I am back now and the editions resume their Sunday rhythm. I also shipped a set of new features on the paid app and will send a separate email about them. Back to the market.

The market spent three weeks arguing about the price of money, and Friday settled the argument. The jobs report printed 162,000 against expectations of a third of that, and a Fed hike this month went from unlikely to more likely than not. Energy is the one trade that never needed the argument, and it kept leading. Everything else in this letter is about what dearer money does to the average stock before the index notices, and why the S&P can sit near its record while most of what is inside it retreats. The trade at the bottom buys a company the market has already punished for it, with four of its directors buying alongside.

Get the app. Every subscriber gets this letter. Paid readers also get the app it is written on.

What is inside:

• Twenty-six screeners. They run every night on 12,000+ US stocks: pullbacks, breakouts, bottoms, squeezes, insider clusters, unusual options flow.

• Sectors and themes. Which corners of the market lead and which lag against the S&P, which way each one is turning, and twenty-six themes tracked basket by basket: AI agents, defense tech, drones, critical minerals, the power grid, fintech.

• Where the market stands. Breadth, rates and inflation, the dollar and the curve, commodities, crypto, and the sentiment gauges, all rebuilt after every close.

• Who is buying. 13F books from 100+ funds, activist stakes, Congress disclosures, insider clusters, buybacks, federal contracts.

• Your desk. Build your watchlist, set your price alerts, analyze your positions, keep your trading journal, and size your next trade.

• The Academy, our private trading course. 35 lessons that take you from reading a chart to sizing a trade and a guide to every page in the app.

Start your 7-day free trial. Then $20 a month or $200 a year.

Upgrade to paid

📊 Market Health

The market has been correcting for three weeks under an index that has barely moved, and the order in which a higher short rate reaches companies explains both halves. When the front end of the curve reprices for a hike, the average stock pays first, because it carries more floating debt, refinances sooner and is valued on next year's earnings, while the largest companies fund themselves and buy back their own shares. That is why my market health score, which weighs six thousand stocks equally, went from 73 on August 14 to 36 on August 28 and recovered only to 44 this Friday, still labeled weak, while the S&P never closed more than two percent below its record over the same three weeks and ended this Friday one percent under it. The recovery from 36 came from the new-high list, which is dominated by energy names, international funds and short-duration bond funds, the places money has been hiding, and the advance-decline work did not join it: this Friday closed with as many decliners as advancers even as the Nasdaq rose. So the index and the average stock have separated, and the flows that separated them left the middle of the market, where most portfolios live, for the handful of names that hold the index up and for cash.

The McClellan summation tells the same story with dates. It read 258 when I last wrote, climbed for two more weeks to 1,064 on August 28 as the rally broadened into late August, then gave back four hundred points to 666 in the five sessions since, which is the shape of a market that lost the average stock the moment the 2-year yield turned up on the Warsh speech. The share of stocks above their 200-day average fell from 56% to 52% over the three weeks, the share above the 50-day from 58% to 46%, and only 39% hold above the 20-day, so the long trend is intact, the medium trend is breaking and the short trend is broken, the ordering of a correction that started underneath an index that has not registered it. The sequence of the week confirms who is in charge: Monday and Tuesday sold off as the 10-year pushed toward 4.8% on renewed US strikes on Iran and the oil bid, Thursday made the week, and Friday's payroll surprise took a third of Thursday back. The index finished flat and the equal-weight S&P lost 0.8%, so the version of the market most people own went down in a week the headline said nothing happened.

🚨 Sector Rotation

Three sectors hold a majority of their members above the 50-day average, down from nine three weeks ago, and none of the three is what carried the index this year.

Energy has had the deepest participation on my sector table for four straight weeks, 83% of its names above trend, and it won on price this week as well while Brent finished near $95 after the US and Iran resumed strikes and traffic through the Strait of Hormuz fell back to a handful of ships a day against dozens before the war, according to the PortWatch transit counts. Inside the sector the money is precise: refiners rank first of the hundred and nineteen industries I track over sixty days, with a relative-strength lead of 36 points on the S&P, because they earn the spread between crude that cannot leave the Gulf and products everyone still needs, while oilfield services, the group that sells the drilling, carries negative relative strength because producers, flush and disciplined, have not started spending. Materials holds second in participation at 66% and lost 1.4% in price, its gold miners and chemical companies pulling in opposite directions, a split I cannot explain this week. Financials is the third and last group above the line, at 59%, down from 72 in mid-August, and the rotation graph has it sliding out of the leading quadrant. The point the price does not show: energy's correlation with the S&P was 0.62 last year and reads -0.30 this year, so the sector that leads is also the one that pays when the rest of the book falls, which makes it a hedge, and hedges that everyone owns get crowded: in the latest session on my dark-pool page Suncor printed most of its volume off-exchange, with almost all of it flagged short.

Below the line sit eight sectors, and they read like a list of what a higher short rate touches first. Consumer discretionary lost 2%, the worst line in price, with a third of its members above trend, and inside it the industries with zero names above the 50-day are resorts and casinos, airlines and trucking, while apparel manufacturing has 11%. Real estate is last in participation at 22%. Utilities sit directly above it at 27% after losing 2.8% in three weeks, which closes a thread from August: the group refused to rally in the two weeks when front-end yields fell, which should have helped it, and the front end has since reversed to a twenty-month high on the 2-year, so the refusal was the right read.

The rotation graph below adds the direction of travel the table cannot show: energy, health care and financials all sit on the strong side of the market with momentum fading, technology is the only sector improving and it still has under half of its members in uptrends, so the leadership that carried the summer is tiring and the one sector with enough weight to replace it has not arrived, which leaves the index with a handoff and no receiver into the most important two weeks of the quarter.

🔍 Pairs Alignment

Nine spreads on my monitor, seven aligned, none extreme, and the two that are stretched both point at the bond market. The S&P against long Treasuries sits 1.5 standard deviations above its 90-day mean and the S&P against the dollar at 1.3, the signature of stocks holding while bonds and the dollar are sold, which is the risk-on pattern when breadth comes with it. It came without, so the two spreads describe two prices that cannot both be right, equities priced off earnings that have not been revised down and bonds priced off a hike that the futures market now puts at 58%. Inside technology the opposite rotation is running, because the Nasdaq-100 had been lagging its equal-weight twin and closed most of that gap this week, so the cap-weighted names are winning again inside tech while the equal-weight S&P loses to the index. Both moves are the same move seen from two ends: money is leaving the middle.

📉 Volatility

The VIX closed the week at 14.53, in the bottom tenth of its yearly range, while the SKEW printed 150.6 on Thursday, the latest reading and the top of its range for the month, and the two do not disagree by accident.

The SKEW prices far out-of-the-money puts against puts near the money, so when it rises while the VIX sleeps, someone is paying for protection against a large move while the market as a whole prices a small one. It has risen twelve points since mid-August, and the three-month-to-one-month ratio has come in from 1.30 to 1.21 as the front end woke up, so the autumn premium that looked expensive in August has been pulled forward into September. The three volatility signals I watch together, the SKEW, the term structure and realized volatility against implied, are all on at the same time this week, which is uncommon and which I read as a statement about positioning: a high SKEW says who is hedged, and it does not say when the hedge pays. Its use is sizing. This week calls for a smaller book than a 14 VIX would suggest.

💱 FX

The yen made the week's biggest move and Washington did not have to buy it this time. The dollar index lost half a percent in a week when US 2-year yields hit a twenty-month high, the wrong direction for a currency whose central bank may hike in ten days, and the reason is one pair: dollar-yen fell 2.5% to 156, the yen's best week since the joint US-Japan intervention in late July, on a bet that the Bank of Japan turns hawkish at its September 17-18 meeting, the day after the Fed decides. Japan's top currency diplomat Atsushi Mimura said on Friday he remained alert and in constant contact with US authorities, the phrasing officials use when they want the market to do the work for them, and the market did it. So the two central banks that set the price of the carry trade meet in the same 48 hours, both leaning toward higher rates, with the funding currency already 2.5% more expensive; the template for a yen rally that meets a hawkish Bank of Japan is July 2024, when the unwind that followed took the S&P down more than 8% in three weeks, and while the positioning is smaller now and the Bank has already moved twice, I keep the date in mind. One more line from the same table: the Korean won, the currency most tied to the memory trade, strengthened 2% against the dollar in a week when the biggest hedges in the options market were bought on semiconductors. Those two facts may be unrelated. I would not bet on it.

🧠 My Take

Energy held and the broadening did not, because the 2-year went the wrong way for it. Everything now hangs on one number: CPI on Friday September 11, five days before the Fed decides.

Hike, priced and absorbed, 45%. CPI near consensus, a quarter-point hike on the 16th, and the 2-year stalls near 4.4% because the hike is already in it. The index holds between Tuesday’s low near 762 and the August record at 778, breadth stays weak, energy keeps leading. The tell: the 2-year falls on the day of the hike.

Hot CPI, disorderly, 30%. Core inflation above expectations, the market prices two hikes, the 30-year revisits 5.25%. A close below Tuesday’s low opens the way to 750, where the largest put position sits, and the VIX trades above 20 into the Fed meeting. The tell: the 2-year above 4.5% before the meeting.

Soft CPI, relief, 25%. Inflation cools, hike odds fall back under a coin flip, the yen rally reverses and the rally broadens the way I expected in August. The tell: the equal-weight S&P beats the cap-weight index five sessions running.

🔥 Trade of the Week:

Dick's Sporting Goods closed Friday at $139.15, down 31% since mid-August, almost all of it on one day. On August 25 the company missed its quarter and cut its full-year earnings guide to $11 to $12 a share from a range that started at $13.50, and the stock fell 31% on twenty-eight times its normal volume. The problem is Foot Locker, the chain Dick's bought a year ago, where comparable sales fell 3.6%. Dick's own stores grew comparable sales 4.9% in the same quarter. So the market sold the whole company for a problem in one part of it, and that is what I am buying: a core business that is still growing, priced at 12 times the cut guidance, with a 3.6% dividend and a mean analyst target of $166.

My Bottom screener, built to catch declines that have run their course, has had Dick's on its list all week, and Dick's directors bought. Four of them put $3.7 million into the stock in the two days after the fall, Mark Barrenechea alone $2.2 million. Directors buying with their own money two days after cutting guidance, at the low, is the pattern I weight most heavily.

The chart (with volume profile) shows where the stock has traded since the crash. Most of the volume since August 25 changed hands between 122.58 and 139.97, with the busiest price at 130.92, which is also where the directors bought. Friday's close sits at the top of that range, so the stock is now asking whether buyers will pay more. Above, 147.17 is the first level where people who bought on the crash day get their money back, and that is the first target. Below, 131 is the price I want for the second half. A close below the August 26 low at 120.40 means the bottom is not in, and I am out.

- Sizing: small, half the usual, in two halves

- Entry: $136.00 first half, $131.00 second half

- Stop: $119.90

- Target 1: $147

- Target 2: $166

- Stretch: $175

See you next week,

Daniel

P.S. The app is the daily version of what you just read, the same boards and screeners I run every morning before I trade. It now comes with a free 7-day trial.

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Disclaimer

This newsletter is for educational and informational purposes only. It is not financial advice.

The content reflects personal opinions shared publicly as a journal. Trading stocks, options, futures, or any financial instrument involves significant risk. You can lose your entire investment. There is no guarantee of profit.

The author is not a registered investment advisor, broker, or financial professional with any regulatory authority including the SEC or CFTC. Always consult a licensed financial advisor before making any investment decisions.

By reading this newsletter, you accept full responsibility for your own trading and investment choices. Past performance does not guarantee future results. Markets are unpredictable.

Screenshots are courtesy of TradingView, VixCentral, and other platforms with which the author has no affiliation. Information shared may contain errors or become outdated quickly.

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No edition this week, I’m still on the road. Back next Sunday.

One reminder before I go. The 25% offer on the app ends tonight at midnight: $150 for the first year instead of $200.

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See you soon,

Daniel

Hello my friends,

I am traveling on vacation for 2 weeks so this is a short edition.

📊 Market Health

My market health score gave back eleven points and price did not follow. Last Friday’s spike to 84 stood on a single jobs report. This week the market had to hold those levels without fresh fuel, and it did, drifting to 73 while the S&P added a third straight weekly gain.

The McClellan summation, the component I leaned on hardest last Sunday, slipped from 347 to 258, still positive but done climbing for now. The slower measures picked up the slack: 56% of stocks still trade above their 200-day average, and nine of eleven sectors keep a majority of members above their 50-day.

On Friday the S&P slipped while the Russell 2000 closed at a record, its fourth straight up day. For most of this year the index rose while the average stock watched. This week the roles swapped.

🚨 Sector Rotation

The leaderboard flipped in five sessions. Energy finished first in price, up 7.7%, and first in participation too, with four of every five members above their 50-day. Last Sunday it was the worst line on the board.

The chronology matters more than the size of the move. Almost five of those points printed on Monday, before any new attack, when weekend strikes on shipping made the reopening talks look stuck. Thursday’s hit on two ADNOC tankers inside the strait confirmed what Monday had already priced. Four months into the closure, with the IEA warning that global stockpiles are draining fast, Brent traded near $90, and no new war was needed to get it there.

The rest of the board says the real-asset bid is spreading. Materials joined the leaders, and financials kept the second-deepest participation on my screen. Technology slid into the weakening column even with the Nasdaq up on the week. Utilities bounced 1.6% in price and stayed dead last in breadth at 37%. The front end of the rate market handed that group its excuse again this week, and the group refused it again. I said last Sunday a sector that ignores good news knows something. I have no better answer this week.

📉 Volatility

The surface is priced for a quiet August that nobody can guarantee. The VIX closed at 14.25, near the floor of its month. The term structure says more: three-month volatility against one-month trades at 1.30, the top of its two-year range. Protection for the next thirty days costs almost nothing while the autumn carries the full premium.

Two details push back on the comfort. The SKEW rose 3% Friday, which reads to me as buyers rebuilding the crash insurance I flagged last week as the cheapest in a year. And crude volatility stopped falling: the sellers who spent July pricing a stalemate covered this week.

🔥 Trade of the Week:

Papa John’s closed Friday at $24.26, a billion-dollar franchise trading four percent above its 52-week low, down 37% this year.

The damage is real and dated August 6. The company beat on profit that morning and the stock still lost 17% in a session, because everything around the beat was ugly: North America comparable sales fell 8.3%, the full-year outlook was cut, and the board suspended the dividend. The market read all three as a franchise in decline and priced it for one.

Here is what I read. International comps have grown seven quarters in a row, and the turnaround has already worked on those markets. Suspending the dividend hands the company its own cash back when it needs it. And the tape has done nothing for six sessions. Six closes within a dollar and change of the low, with volume shrinking from eight million shares on earnings day to one million Friday.

My Bottom board, built to catch finished declines, flagged the name this week. The pieces it wants are all there: a decline old enough to be structural, a capitulation on volume near twice normal, an RSI in the low twenties, and a five-session slope that has already turned positive while the ten-session slope still points down.

• Sizing: small

• Entry: $24.25 first half, $23.53 second half

• Stop: $23.27

• Target 1: $27.20

• Target 2: $30

• Stretch: $33

Cheers,

Daniel

P.S. The app is the daily version of what you just read, the same boards and screeners I run every morning before I trade. Promotion is on for 1 week.

Get 25% off

Disclaimer

This newsletter is for educational and informational purposes only. It is not financial advice.

The content reflects personal opinions shared publicly as a journal. Trading stocks, options, futures, or any financial instrument involves significant risk. You can lose your entire investment. There is no guarantee of profit.

The author is not a registered investment advisor, broker, or financial professional with any regulatory authority including the SEC or CFTC. Always consult a licensed financial advisor before making any investment decisions.

By reading this newsletter, you accept full responsibility for your own trading and investment choices. Past performance does not guarantee future results. Markets are unpredictable.

Screenshots are courtesy of TradingView, VixCentral, and other platforms with which the author has no affiliation. Information shared may contain errors or become outdated quickly.

This content is the intellectual property of the author. Copying or redistributing without permission is prohibited.

By continuing to read, you acknowledge and accept these terms.