DISCIPLINE over CONVICTION.

This week’s moves in Stocks added to what has been a massive month…

As I emphasized every moment since the start of August:

Staying allocated to the best themes was THE #1 goal.

It took a lot of hard work, and August was the culmination of all our efforts...

I’m proud of what we were able to achieve this month, and this year so far.

So much has happened since January already.

Four months left to go…

1. I think there’s a LOT more opportunity to come (*it’s a Midterm year after all).

2. September could get trickier… I want to stay DISCIPLINED and take only the absolute BEST risk-reward setups.

3. Listening and adapting to the market, always.

In today’s report:

✅ Discipline over Conviction: no forced trades.

✅ Positioning is shifting *rapidly*: new extremes & opportunities.

✅ Focusing only on the VERY BEST options on the board — where do we stand?

✅ My Framework and Roadmap — a CORE plan we’ll be running for the rest of the year.

✅ A Special Update on Bitcoin — looking through history once again, for a potential big Buy.

Have a great week ahead!

EXECUTIVE SUMMARY

✅ September is setting up to be a choppy month for markets.

✅ I think September could be trickier, but manageable.

✅ I’m balancing the following key variables as we move forward:

• Long-term rates should be relatively more stable than Short-term rates, with a bias to lower Yields — due to positioning skew, and government policy.
• Short-term rates could be choppier, driven by data uncertainty, the Fed’s reaction function, and geopolitics keeping Oil & Energy elevated.
• For instance: from Anna Wong, Chief U.S. Economist at Bloomberg:

• As Anna’s post suggests, the market’s 50-50 September hike could be mispriced.
• Under normal circumstances, it makes sense for the Fed to be “talking tough” on inflation here — but traders may be jumping the gun on hikes.
• This could create opportunity to Buy/Add to dips in Gold, Bitcoin, and Rate-sensitives.
• Additionally: if Anna’s forecast is right and payrolls disappoint again, how will markets react? Will Stocks and Gold rally as they did in August, or will they decline in fear the Fed is focused too much on inflation?
• It’s a Midterm year after all… will the Fed really hike? What’s the Fed’s incentive to hike now? (Geopolitics could calm down sooner rather than later… which would be disinflationary.)
• Overall, markets will have to price these near-term uncertainties, even if the path ultimately leads to “no hike”. Choppy for now… but in typical Midterm fashion, maybe resolving higher into year-end. This would be the ideal playbook.
• Adding to the framework:
• Rates & Equity Volatility remain stable for now, an important driver. If volatility begins to turn higher, we will adjust accordingly. *We’ll be tracking for any signs of a turn in real-time, and updating via daily notes.
• Equity positioning remains mixed, with crowded S&P longs, neutral Nasdaq, crowded Russell shorts, and crowded VIX shorts.
• This could get resolved with more chop, as Nasdaq positioning showed this week (*will discuss in the next section).
• For a large correction to develop, we would need momentum to weaken further, and the market profile isn’t there yet:
• On the Bearish side, AI/Semis remain choppy and relatively weak, but their weakness alone was not enough to drag the market lower in June (S&P only pulled back 5%, while SOX fell 30%).
• On the Bullish side, other parts of Tech including MAG7 and Software are holding up, which would provide a good support for the market.
• As a result of these balancing forces, a choppy range seems more likely to persist for now, with rotations dominating.
• Last but not least, think one market deserves special attention here: Bitcoin could hold the key, and we’ll publish a quick SPECIAL UPDATE in this report — studying where BTC could be in its Bull Market, and the implications for ALL risk assets.
• Armed with all this, we can construct an interesting roadmap for September.

Let’s begin…

FLOWS & POSITIONING

COT POSITIONING SUMMARY

Positioning extremes:

• Net-long extreme: Industrial Metals (Copper, Aluminum) · S&P
• Net-short extreme: SOFR · VIX · CAD · FF · TY · FV

Visualizing the extremes across markets:

• S&P positioning remains extended at 93th percentile.
• VIX positioning remains near the lowest in history.
• Rates positioning is noisy due to basis trades, but exposure remains extremely low across the entire curve.
• Industrial Metals positioning is extremely crowded.
• FX positioning remains crowded long U.S. Dollar (*92 percentile).

POSITIONING HIGHLIGHTS

Nasdaq positioning has flipped rapidly:

Traders went from record Short to $19bn Long in two weeks (+$35bn net buying):

Russell hedge fund positioning remains near the lowest ever:

Rates positioning remains near rock-bottom levels for the entire curve.

Below, Ten-Year positioning for reference:

*Can Bonds “fall from the basement”?

VIX positioning remains crowded short:

SUMMARY:

1. Funds are extremely Long S&P, Industrial Metals, and the Dollar.

2. Funds are extremely Short Russell, Bonds, and VIX.

3. Following the recent position-covering in Nasdaq, perhaps other positioning extremes could get resolved with more chop in September?

4. Seems like a market eager to close positions on any small moves…

5. If so, the odds of September turning into a chop-fest are rising.

Maybe things get easier — but better to stay disciplined here, and focus on the BEST setups for now.

No forced trades…

CRITICAL CHARTS, LEVELS & SCENARIOS

Core Risk remains relatively muted. *Stocks could pull back, with the historical base case being a ~5-8% move (standard). For a larger decline to develop, momentum would need to weaken further, and the market profile isn’t there yet. Will be assessing risks into September as we go:

A choppy range seems more likely to persist for now, with rotations dominating:

SPY near-term ~$750 could get tested for September business as part of a natural pullback/retest. Thinking about scenarios and running historical studies, a deeper pullback to ~$740 would likely trigger a major Core Model Buy signal. Because of this, think the medium-term setup for risk is constructive. Add Midterm seasonality turning positive into year-end, and the odds favor an upside resolution into $800+ range over the next few months. Therefore, tracking the bottom/optimal entry in this consolidation will be essential. Will be assessing this in daily notes, and updating signals along the way:

QQQ has an upside gap at $730 (NDX 30,000) which could still be in play near-term. Perhaps $700 gets retested as well, and if things get “messy” QQQ could form a deeper pullback (inverted right shoulder?) at $686. For now, a retest of $650-660 seems like lower odds. More likely, continue to operate with Tech in a choppy range, with rotations between MAG7, Software, and AI/Semis:

*My plan for the moment is to maintain most Tech exposure, while reducing AI/Semiconductor stocks (which could be more vulnerable to a deeper pullback — as I’ll cover later in this section).

Thinking about near-term scenarios, if QQQ/SPY gets oversold again, it could mark the final Buy setup of the year (*therefore important to watch — and will be updating as well):

No guarantees — but this would offer a clear, compelling asymmetric setup.

Staying disciplined, and focusing on the VERY BEST setups — this could be one of them.

*Will be revisiting this and adding new signals throughout the month.

Another important barometer we’ll be watching:

Russell took a hit this week, but is still up 20% YTD, outperforming the Dow (+11%), S&P (+13%) and Nasdaq (+17%).

If this is a normal pullback, it should find support soon:

On the Bear side…

Semiconductors are turning weak again, and this week’s rollover could lead to more downside:

*Accordingly, I’ll be closing positions for a small gain, and looking for a new Buy setup into September/October:

The Barron’s cover doesn’t help either…

“No End in Sight — The AI bubble is unlikely to burst anytime soon.”

More importantly, SMH/SPY displays a clear rollover and could test lower targets:

When operating in *all* market conditions:

I want to look for opportunities to move more capital INTO what’s working.

“Water the flowers, and cut the weeds.”

For now:

✅ There could be some turbulence ahead for Semis.

✅ In June, weakness in Semis didn’t hurt the market too much (S&P pulled back 5%, while SOX fell 30%).

✅ Semiconductors could be a leading candidate for new Tactical Buys on the other side of this consolidation.

Moving on for now — and watching closely for the next Buy opportunity.

Discipline over conviction.

VOLATILITY

Rates and Equity volatility remain stable for now, an important driver.

If volatility begins to turn higher, we will adjust accordingly.

*We’ll be tracking for any signs of a turn in real-time, and updating via daily notes:

One important signal I’ll be watching closely here:

1. VIX sentiment is near bottoming range.

2. Feels like this could print an extreme low at any moment — perhaps this week (*will update):

METALS

Gold is pulling back — several important support levels converge around $4400. Note the 50-day is rising again, which is important:

Silver’s breakout failed and the range continues for now — key support comes in directly below at $63-64. Note the 50-day is flat and potentially turning UP to support as well:

GDX pulled back to the 10-day (and filled the gasp from last week). It should ideally consolidate while the 20-day catches up. Think this ultimately resolves to the upside, ideally to targets in the $107-115 range. Watching the trend and holding positions for now:

I remain laser-focused on tracking this opportunity as far as it goes.

Will update as signals develop, and new setups emerge (*maybe there’s an opportunity to ADD into a September roll-up — TBD).

Copper is consolidating near the highs — as before, I want to continue focusing on Precious Metals over Copper, due to the positioning gap (*Industrial Metals remain crowded):

RATES

The short end could stay choppy for now, driven by uncertainty over data, the Fed’s response mechanism, and geopolitics keeping Oil & Energy prices elevated:

Watching the 2YR at big resistance around ~4.40:

The 5YR pushed to new highs:

The long end should remain relatively stable, with a bias to lower Yields — due to positioning risk, and government policy.

Near-term, the 10YR is coiling at resistance, and could briefly break higher to ~4.80 (another mini-panic?)

As before, a failure in this range would be critical to watch:

The 30YR continues to battle at the breakout, with an active Sell signal already triggered (lower Yields). IF the 30YR turns down here, it would remove a lot of pressure from other markets:

As before, if Bond prices head lower (Yields a bit higher), Sentiment would push to historic extremes, setting up a major turn:

Remember: the majority of market participants is convinced Rates can only go up.

The stage could be set for a reversal.

THE DOLLAR

Dollar positioning has dropped a bit, but remains extremely elevated:

Near-term (below), DXY is bouncing into big resistance — where an asymmetric Sell setup should develop:

Big picture: if this bounce fails, it could lead to the Dollar breaking its long-term channel — and opening significantly lower targets.

Because of this, think it’s critical to stay focused on identifying a buyable dip in Precious Metals/Miners and Bitcoin over the coming days/weeks.

USDJPY remains one of the top pairs I’m watching, if it can retrace a bit higher — ideally into ~161-162 range:

*This is another high-priority setup in my view, likely actionable into early/mid September. Will update.

OIL & ENERGY

Oil remains in a tight consolidation, with no signal either way:

Energy stocks remain a top focus for potential Short positions, if they complete the topping pattern (*if history repeats, this is likely to trigger sometime in September):

Following our prior analysis of the 2022 cycle:

Here’s a reference roadmap for what could be ahead:

*Note how the XLE/XOP charts are tracking relative to 2022.

We’re on High Alert for a potential rollover in these (will update).

If XLE/XOP turn in this range, they may signal the CORE downtrend in Oil (similar to 2022).

If so, Rates would have a strong reason to follow lower.

Stay flexible/ready — this could be a big setup coming soon.

SPECIAL UPDATE: BITCOIN

Bitcoin deserves special attention here.

Looking at where BTC could be in its Bull Market:

*Note the 200-day turning UP, while price approaches the May high after a sharp rally.

I think BTC could hold the key here.

This could have implications for ALL risk assets:

BTC’S last Bull Market began the SAME way…

*Note the “X” is where I think we could be today. Next, BTC could try to break the May high, leading to an initial pullback.

If anything like this happens again, it would be a big Buy opportunity:

As always: all that matters is the asymmetry of the setup.

Whatever happens, BTC could be an important signal for ALL risk assets.

It could eventually ignite animal spirits for a BIG year-end rally.

BTC could be one of the leaders of the next rally phase — perhaps THE leader, if a new Bull Market is starting…

I’ll be watching BTC with *strong interest* this month.

PORTFOLIO HOLDINGS

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PORTFOLIO NOTES

Staying disciplined as we enter September, focusing only on the VERY BEST setups.

No forced trades — let the market come to us:

✅ Looking for new opportunities, and moving more capital into potential leadership.

✅ Paying *especially* close attention to new leaders in Health Care, Materials, Rates-sensitives, and Cyclicals here.

✅ If the market gets choppier, watch what’s holding up the best…

CHART HIGHLIGHTS & TOP SCANS:

CONSTRUCTIVE / STRENGTHENING:

WEAKENING:

ETFs: SMH XSD XTL / Stocks: most AI, Semis, Hardware, Memory, Neoclouds…

FINAL THOUGHTS

September is setting up to be a potentially tricky month:

✅ I want to stay disciplined and take only the absolute BEST risk-reward setups.

✅ No forced trades — wait for the market to show the way, then respond aggressively.

✅ Dips could create a solid opportunity to Buy/Add to Precious Metals/Miners, Bitcoin, Rate-sensitives, and NEW potential leaders.

✅ Bitcoin could be an important signal to ignite animal spirits for a BIG year-end rally. Will be watching with strong interest from here.

Looking forward to what September brings…

Thanks for reading.

Onwards and upwards, -MC

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