Chester

[*Walter Bloomberg @DeItaone]

TRADERS NOW SEE ABOUT A 90% CHANCE OF A FED RATE HIKE NEXT WEEK, VS ABOUT 70% BEFORE THE INFLATION REPORT

[The Kobeissi Letter @KobeissiLetter]

BREAKING: August CPI inflation comes in at 3.4%, in-line with expectations of 3.4%

Core CPI inflation falls to 2.4%, also in-line with expectations of 2.4%.

Month-over-month CPI inflation rose +0.4%, the biggest increase since May 2026.

Treasury yields are rising on the news.

[Jim Cramer @jimcramer]

Can’t stop the oil trade. Just too powerful!

[The Kobeissi Letter @KobeissiLetter]

Hedge funds may now be a bigger risk to Treasuries than China:

For years, China was considered the biggest threat to the US Treasury market, as China’s official Treasury holdings grew to as large as $1.3 trillion in 2013, or 14% of the total.

This proportion, however, has steadily declined since then, to ~2%, its lowest since 2001.

Meanwhile, hedge funds now account for ~9% of all Treasuries outstanding, more than double their level seen in 2013.

Hedge funds now hold ~$2.6 trillion of Treasuries, with their gross exposure at ~$4.0 trillion, which includes short positions.

More importantly, these positions are increasingly debt-financed, with hedge fund repo cash borrowing surging to ~$3.0 trillion, more than doubling since early 2023.

This makes the Treasury market more vulnerable to forced selling, since a rise in yields can trigger margin calls for these leveraged funds, forcing them to sell Treasuries to raise cash and reduce their debt.

Hedge funds have become a major force in the Treasury market.

[The Kobeissi Letter @KobeissiLetter]

Bitcoin and gold are increasingly moving together:

The 90-day correlation between Bitcoin and gold prices is up to +0.50, almost matching the all-time high set during the 2020 pandemic.

This figure has more than doubled since the start of the year.

By comparison, following the 2022 bear market recovery, the 90-day correlation rose to +0.30.

The recent surge accelerated following the US Treasury announcement on August 19th that it would at least double its buybacks of long-dated government debt, from $2 billion to $4 billion per operation.

Meanwhile, the 90-day correlation between Bitcoin and the Nasdaq 100 is down to ~0.30, a 1-year low.

Investors are increasingly turning to both gold and Bitcoin as hedges against currency debasement.

[*Walter Bloomberg @DeItaone]

US JOBS SMASH EXPECTATIONS

August nonfarm payrolls surged +162K, crushing the +53K consensus.

Unemployment held at 4.1%, in line with expectations.

Private payrolls rose +127K, while government added +35K.

Hourly earnings increased +0.27% MoM / +3.09% YoY.

Labor-force participation: 61.6%.

Previous payrolls revised to +21K in July and +31K in June.

[*Walter Bloomberg @DeItaone]

US LABOR AUG NONFARM PAYROLLS +162K; CONSENSUS +53K

[The Kobeissi Letter @KobeissiLetter]

AI and software stocks are now rising together.

The 1-month correlation between AI-related stocks and software stocks has risen +0.70 over the last month, to +0.15, marking its largest monthly increase since July 2025.

By comparison, the 1-month correlation was as low as -0.56 in July 2026, as investors increasingly viewed AI as a threat to traditional software businesses.

As a result, hedge fund exposure to software and services stocks declined -5 percentage points over the 12 months ending July, to just ~1% of total global hedge fund market exposure, near its lowest level on record.

The recent increase in correlation comes as some software firms previously viewed as vulnerable to AI are actually finding ways to use the technology to strengthen their existing businesses, improve productivity, and defend their competitive advantages.

Meanwhile, the US software ETF, $IGV, is up +39% since its April low, recovering most of its drawdown that began in October 2025.

The AI trade may be shifting from disruption to adaptation.

[The Kobeissi Letter @KobeissiLetter]

BREAKING: President Trump is having private discussions with senior aides about potentially declaring the Iran War over, per WSJ.

Aides are reportedly advising President Trump that an escalation of the war beyond recent strikes could cost Republicans the midterm elections.

[The Kobeissi Letter @KobeissiLetter]

BREAKING: Short interest in the median S&P 500 stock is up to 3.2% of market cap, the highest level since 2009.

This is now approaching the 2008 Financial Crisis peak of ~3.8%.

By comparison, during the 2022 bear market, this percentage was ~1.7%.

Furthermore, short interest among the most heavily shorted 10% of S&P 500 stocks is up to 8.0% of market cap, the highest in 8 years.

Even during the 2000 Dot-Com Bubble burst, short interest never surged to these levels.

The short trade is starting to look overcrowded.

[The Kobeissi Letter @KobeissiLetter]

BREAKING: Hedge funds posted their largest weekly sale of US equities last week since the week of “Liberation Day” in April 2025.

This marks a sharp reversal after 3 consecutive weekly purchases.

Single stocks accounted for ~53% of total sales, one of the highest readings over the last year.

9 of 11 sectors were sold, led by Information Technology, Industrials, Utilities, Health Care, and Materials.

Only Energy and, to a lesser extent, Consumer Discretionary saw purchases.

Meanwhile, macro products, such as index futures and ETFs, accounted for ~47% of total sales, with US-listed ETF shorts modestly increasing last week, and snapping a 6-week streak of short covering.

Hedge funds are rapidly unwinding their bullish bets on US equities.

[Macro Charts @MacroCharts]

Biggest Nasdaq Short of all time.

[Jeff Sun, CFTe @jfsrev]

Another free script by @ETFbreakouts on RVOL. very useful for volume based breakout traders

IBD Style Relative Volume - https://t.co/gkspVLefSf

[Jeff Sun, CFTe @jfsrev]

i came across this VCP tightness indicator which may be useful for some. Chart displayed on $UPST here is based on default setting. there's also some other incredible scripts by joshdm_94 on @tradingview

VCP tightness (ADR Adjusted) - https://t.co/beAcWGr4Be

15 other scripts -
https://t.co/ZsShRupb8u

[Clement Ang @Clement_Ang17]

Follow The Leaders for Clues to a Market Top

The second most important indicator of a primary change in market direction, after the daily averages, is the way leading stocks act. After the market has advanced for a couple of years, you can be fairly sure that it's headed for trouble if most of the individual stock leaders start acting abnormally.

One example of abnormal activity can be seen when leading stocks break out of third- or fourth-stage chart base formations on the way up. Most of these base structures will be faulty, with price fluctuations appearing much wider and looser. A faulty base (wide, loose, and erratic) can best be recognized and analyzed by studying charts of a stock's daily or weekly price and volume history.

[...]

Shifts in market direction can also be detected by reviewing the last four or five stock purchases in your own portfolio. If you haven't made a dime on any of them, you could be picking up signs of a new downtrend.

Investors who use charts and understand market action know and understand that very few leading stocks are attractive around market tops. These simply aren't any stocks coming out of sound, properly formed chart bases. The best merchandise has been bought, played, and well picked over.

Most bases will be wide and loose - a big sign of real danger that you must learn to understand and obey. All that's left to show strength at this stage are laggard stocks. The sight of sluggish, or low-priced, lower-quality laggards strengthening is a signal to the wise market operator the up market may be near its end. Even turkeys can try to fly in a windstorm.

Other Bear Market Warnings

If the original market leaders begin to falter, and lower-priced, lower-quality, more-speculative stocks begin to move up, watch out! When the old dogs begin to bark, the market is on its last feeble leg. Laggards can't lead the market higher. Among the telltale signs are the poor-quality stocks that start to dominate the most-active list on market "up" days. This is simply a matter of weak leadership trying to command the market. If the best ones can't lead, the worst certainly aren't going to do so for very long.

[...]

The majority of people in the stock market, including both professional and individual investors, will be fooled first. It's all about human psychology and emotions.

How To Make Money In Stocks, William O'Neil

--------------------------------------------------------

Not calling for a top, but it certainly has not been an easy dollar environment. And looking at the action of my watchlists the past week, I certainly resonate with this particular section of the book.

[Evan @StockMKTNewz]

Citadel Securities said 10 days ago that:

Systematic buyers are getting ready to load up on stocks again after a massive unwind ... The potential for a rebound is building, with the next meaningful mechanical flow may be re-leveraging rather than deleveraging

[Christian Flanders @CFlanders7]

From 1999:

Tech stocks top out and the money flows into biotech.

[Christian Flanders @CFlanders7]

QCOM 1998-1999. From the lows of the 98 bear market to the 1999 highs +4184%.

SNDK 2025-2026 From the lows of the April 2025 correction to the 2026 highs +8340%.

[Jeff Sun, CFTe @jfsrev]

This was how $KC move +180% in 2024. Look at their share structure and how at least 5 MA coils together before the beginning of a big move. I use 10/20/50/100/150/200-MA on chart.

https://t.co/80hK1yR0Rc

[The Kobeissi Letter @KobeissiLetter]

BREAKING: President Trump says he has cancelled the US attack on Iran and that the “perimeters of a deal” have been agreed to.

Trump says this deal will include “a total reopening of the Strait of Hormuz.”