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[Dan Niles @DanielTNiles]

Last wk, oil +9% & ylds +11-26 bps across 2/30 curve w/ S&P/Nas/R2K -0.3%/-0.7%/-2.4%. This wk, I am watching reaction to 1) oil/rates, 2) calls to slow down AI development & 3) Fed on 9/16. I remain on the cautious side till US mid-terms on 11/3.

This weekend, the CEO of Anthropic called for a slowing of frontier model development over safety concerns. This follows comments along similar lines by the CEO of OpenAI to employees last week if other companies were willing to do the same thing.

The fundamental issues I have with this is 1) foreign adversaries would welcome the US slowing down AI development, 2) I view this as an attempt to slow down open-weight model development which would help the market dominance of OpenAI and Anthropic which are currently in the lead and 3) I do not see other companies agreeing to anything that slows down progress catching up to these two market leaders. Having said that, I could see 3rd party evaluators to limit liability risk going forward and some sort of executive order from the White House. But I hope the longer-term result of these actions is broadly distributed personal AI capabilities for all individuals versus having it become concentrated in the hands of a few companies.

Along this vein of AI competition, after releasing their paid API of Muse Spark 1.3 two weeks ago with open-weight versions coming later, $Meta launched their personal AI agent Muse last week with the stock gaining 5%. With 3.6 billion daily active users, a hit product could yield large results. Meta is increasingly showing other ways they can monetize their AI capex spend. This should help the stock to re-rate from a 17x CY27 PE to a multiple closer to peers trading in the low 20s. Meta Connect on September 23–24 is another potential catalyst given their leading frontier model Watermelon should be coming at the latest by October.

On the front of broadly distributed AI capabilities, $AAPL stock gained 4% last week on their new product launch. The foldable Duo will provide a personalized AI agent in your pocket with a 50% larger screen than a Pro Max. I continue to see a big upgrade cycle next year. The change from a 4” screen to 5.5” screen with the iPhone 6 drove revenue growth from 7% in FY14 to 28% in FY15. The Android ecosystem has had a foldable Samsung phone since 2019.

As for the Fed on Wednesday, I believe Warsh will raise by 25 bps and echo his hawkish statements from Jackson Hole on August 28th that “Price stability is not self-executing… 65 months of sustained, elevated inflation sits squarely with the Central Bank.” The ECB statement last week when they hiked might provide some hints: “For inflation excluding energy and food, the baseline foresees 2.5% in 2026, 2.6% in 2027 and 2.3% in 2028. Compared with June, the baseline projection for inflation in 2026 is unchanged, while it has been revised up for 2027 and 2028… The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth.”

In summary, my caution between now and the US mid-terms on 11/3 remains for reasons I have fleshed out in prior posts including:

1. Don’t fight the Fed: The market historically under-performs during a hiking cycle with the bond market discounting 2 raises by year-end and 3.5 raises by mid-June of 2027.

2. Seasonal headwinds: September is down -0.5% on average and up only 48% of the time since 1957.

3. Historical volatility: S&P drawdowns of 10% between 7/31 and 11/9 have occurred in the lead-up to mid-terms since 1990.

4. Regulatory friction: There is bipartisan pushback against datacenter expansion that could hurt the AI buildout in the near-term.

5. Geopolitical risk: Despite US efforts to de-escalate, I believe Iran drags out hostilities at least through the 11/3 US mid-terms, keeping oil prices elevated.

6. Macroeconomic pressure: Long-term government bond yields are hitting multi-decade highs for several countries, slowing down growth and providing a reasonable alternative to stocks.

I believe in not fighting the Fed, the bond market or seasonality. I like the odds stacked in my favor which should improve at least seasonally following the mid-terms.

[Imran Lakha | Options Insight @options_insight]

If dealers were really short $10 billion of gamma here, a bad day in the S&P would be down 1.5% or more. We're getting 50 or 60 basis points.

That's how I sanity check any gamma data. Does the market actually behave the way the number says it should?

Realised vol's been under 10 for ages. That's what a long gamma market looks like, and the data I use has had us showing long the whole time. A couple of weeks ago it was around $10 billion most days. This week it's more like 3 to 5. So it's come down, but it hasn't flipped.

The fixed strike vol moves as of late said the same thing.

So if someone's telling you the street is deeply short gamma and the tape's doing nothing, one of them is wrong. I'd trust the tape.

Now, with OPEX coming on Friday, we could see a flip this week, so I'll keep you posted.

[OPTIONSONSPX @optionsonspx]

@imhitheshkolla @epictrades1 Do you need a paper napking to wipe your face?

[Adam Mancini @AdamMancini4]

Your ability to profit as a day trader & exploit an edge is directly proportionate to your ability to ignore noise. For me it means waiting on and reacting to 1 pattern, 1 market (nothing on my watch list), 1 trade mgmt system, total blinders to all else. No macro, no predicting

[Dan Niles @DanielTNiles]

Last wk, SPX/Nas/R2K +0.5%/+0.8%/-1.5% w/ oil -4%. But a hawkish Warsh on Friday led to a bear flattening of the yield curve. Despite $NVDA guide of 70% CY27 rev growth vs consensus of 47%, SOX Index -2.3% while software $IGV +5.9% on solid earnings.

In general, many AI investors have been bullish on semiconductors and bearish on software on the belief that AI will displace many point solution software companies. This is why the SOX index is up 62% YTD and IGV is still only up 4% YTD versus the S&P +13%. Situational Awareness was the poster child for this type of positioning.

But since the unwinding of the Momentum trade which started on 6/22 (I wrote about these concerns on 6/20), IGV has rallied 25% while the SOX Index has declined 22% through 8/28. For perspective, the Morgan Stanley Momentum index (momentum long performance minus momentum short performance) from 6/22-8/28 is down 36% while their more concentrated TMT index is down 54%. But a bullish twist on AI for the software sector introduced recently is that AI agents will access software tools ~10-100x more often than humans.

On 8/6, $TEAM, which was in the bucket of software names widely considered at risk of being replaced by AI, rallied 35% the next day in reaction to solid earnings & outlook.

Then on 8/13, $WDAY rallied 18% on the news that private equity firm Silverlake might be pursuing an acquisition which I wrote probably put a floor underneath software. Workday was also supposed to be in the AI crosshairs and private equity has higher bars to clear given their use of leverage and holding period than a typical investor.

Then on 8/26, $CRM reported solid results, guidance and a deal with Anthropic (in which they also first invested in May of 2023.) The stock was up 23% in reaction the next day. This seemed to be a strong counterpoint to the SaaS-pocalypse worries. This strategic alliance allows users to execute actions natively inside Claude without needing to open traditional software screens. Salesforce also seems to be changing how they charge customers with fees more related to customer use and benefits to their business.

Then on 8/27, Workday reported results which were good enough but arguably acquisition prospects drove more of the stock reaction of +6% the next day from the slightly down opening price.

Historically, system of record, security and gaming software have been the only three areas I have liked within software. I now wonder whether the fundamental implications of Atlassian, Workday and Salesforce are supportive of the technical reactions in the software stocks as a group as agentic AI continues to ramp.

So how do I square this with my concerns that the rapidly escalating amounts spent on AI by corporations has to come from somewhere? Annualized revenue run-rates for Anthropic and OpenAI have ramped from $29B to start the year to $105B just 7 months later. Software spending globally excluding AI was roughly $1 trillion in 2025. But IT services at $1.7 trillion is a bigger category which I believe still has risk. And finally, knowledge worker compensation is an even bigger category where disruption would be even less noticeable at an estimated $35-50 trillion in 2025 or roughly 30% of the global workforce.

Looking forward, the deal on Friday for Venezuelan oil fields that hold the largest crude reserves in the world at 17-18% should get us off to a positive start to the week with declining oil prices. But a bit further out: 1) “Don’t Fight the Fed” given I believe a hike is likely on 9/16 because the 10/28 mtg is right before mid-terms, 2) September has the poorest seasonality of all months, 3) there is even worse seasonality than normal during mid-term election years (see prior posts for more detail) and 4) recent bipartisan pushback against datacenter expansion (one of the few things both sides seem to agree on though I believe this is wrong and hope it will change with more education) puts pressure on the AI infrastructure names.

As Warren Buffett says, the market has to keep pitching but you do not need to swing.

[Reformed Tr🅰️der @Reformed_Trader]

$ASTS here's how the option map looks. Good support from $55-$60. If it can push off $60 it can start heading to $70 and then perhaps next week it opens up the path to $80.

Failing to hold $55 would be problematic as there's little to no support below.

*NFA

[Reformed Tr🅰️der @Reformed_Trader]

$ASTS very rough day here. After reclaiming key moving averages on Friday it immediately lost them at the open today making for another rejection at the 50sma. The MACD is close to flipping to bearish momentum again. The RSI (5) is back near 30.

It's looking like it will retest the falling wedge that is rather messy and possibly not valid at this point considering how many times it's chopped through it.

I think the odds retesting mid $50s or even making new lows is growing quickly. The chart is simply very ugly till $70/$75 is reclaimed in the immediate term.

*NFA

[*Walter Bloomberg @DeItaone]

JPMORGAN WARNS OF AUTUMN SELLOFF AS AI ECHOES 2000

JPMorgan sees growing risks of a late-summer or early-autumn market downturn despite major indexes remaining in bullish trends.

The bank points to weakening market internals, defensive rotation and fading conviction in AI stocks.

Strategist Jason Hunter sees similarities between today’s AI trade and the 1999-2000 tech boom, raising concerns about crowded technology exposure.

Rising Treasury yields, Middle East tensions and softer consumer spending add to the risks.

[Dan Niles @DanielTNiles]

I think investors are increasingly not focused enough on managing downside risk with Situational Awareness an unfortunate recent example. One of the biggest issues I discuss below.

The full interview can be seen at
https://t.co/QWoxXr3Dtd

[Dan Niles @DanielTNiles]

Great info by @SaraEisen. I was wondering why the stock action in many names was akin to the time before Situational Awareness was forced to sell its public positions to Citadel with AI beneficiaries getting hit while the ones in the cross hairs rallied.

As a reminder, the Morgan Stanley TMT (Tech Media and Telecom) Momentum Index had a decline of 54% from 6/22-7/29. On 7/30, following the acquisition of the public portfolio of Situational Awareness by Citadel, the TMT index rebounded a record 19%. The rally continued with a total gain of 35% from 7/29 through 8/17 for TMT. But since Monday 8/17, this index has fallen 19% as of intra-day Friday 8/21.

This letter by Ken Griffin now explains why it felt like there was some other large fund unwinding the same positions that SA had because in fact it was the SA positions. With more than 80% of the unwind finished in ~3 weeks, it would imply this should be mostly over by next week…At which point I can go back to worrying about 1) the median 10% drawdown typically seen on the S&P from peak to trough during 7/30 -11/9 in mid-term years since 1990 and 2) related to this, the US Treasury trying to bring down long-term yields and the bond market saying it will not work with yields across the curve now roughly flat to 6 bps above the levels on Tuesday prior to these actions.

[Imran Lakha | Options Insight @options_insight]

The calm we've had for the last few weeks is a positioning artefact, and I'd argue it's hiding how much movement is actually available here.

While the street is long skew, the VIX doesn't respond properly to what the S&P is doing. Vol of vol stays suppressed. Downside moves feel sticky and slow, because the dealer inventory is quietly working against them.

Watch what changes when clients buy that skew back and the street ends up short it again. The VIX starts reacting to S&P moves the way it is supposed to. Vol of vol picks up with it. And the market opens up to a lot more movement generally, with the downside in particular becoming much less sticky than it has been.

Then look at the calendar. September FOMC, then the midterms in November. Two genuine macro events landing into a market that has just had its volatility reflexes handed back to it.

That combination is what I'm positioning for. I've been very light on hedges, deliberately, because I've been riding this wave higher. This week I started putting some back on. SPY, October.

Might be early. I'd prefer a bit of premium vs find out the hard way.

[Reformed Tr🅰️der @Reformed_Trader]

$ASTS was able to close back above the 20sma and 8ema with the 50sma just above. The MACD is pinching similarly to the prior rallies that marked the short term dips on the way up. The RSI also bounced hard off the 30 level signaling the bulls are attempting to take back control.

*NFA

[Reformed Tr🅰️der @Reformed_Trader]

$RXRX has built a base since Feb. It's trying to push off its 8ema and 50sma as the 200sma is falling. The setup I'm watching for is for the price to attempt a breakout over the 200sma and a move over $4 area that has been short term resistance. Breaking out of that range on volume could signal the start of a bull market for it

*NFA

[Reformed Tr🅰️der @Reformed_Trader]

$ASTS big spot here that I really want to see defended. Gap fill, prior support as well as the 20sma all right here. While there's room lower for bulls to defend I would not view a close below the 20sma as a favorable outcome

*NFA

[Dan Niles @DanielTNiles]

The US Treasury increasing LT debt buybacks is driving an intra-day 8bps decline in 30yr ylds, +0.4% S&P but also a 0.8% decline in the US dollar which puts upward pressure on inflation. This follows yen intervention earlier this month to alleviate upward pressure on US ylds. There is an adage that the bond market will stop panicking when the government starts panicking. So the bulls will be heartened by today’s reaction given credit is the life blood of the economy.

Having said that, what bothers me is none of this solves the underlying upward pressure on rising treasury ylds of 1) 6% US deficits (and high deficits around the globe) despite a strong economy, 2) high US government debt of $40T vs $33T in GDP , 3) increasing hyperscaler debt issuance due to a near doubling in capex this year to nearly $900B & likely over 30% next year to $1.2 trillion taking away some of the demand for treasuries.

The reaction tomorrow to the reaction today will be an important tell. Does the rally continue or was today a temporary reprieve? As I posted on Sunday, there is normally a 10% peak to trough decline in the S&P between 7/31-11/9 since 1990 at some point during mid-term election years. I worry that the odds are increasing of seeing a repeat.

[Imran Lakha | Options Insight @options_insight]

A technical point on VIX that costs people money every single election cycle, and it is not intuitive at all.

Say you want to own volatility around the midterms in early November. The obvious move is to buy November VIX. That is the wrong contract.

Each VIX future settles into the 30-day implied volatility measured from its own expiry date forward. So the October contract is effectively pricing the forward volatility for the window between October and November. That window contains your event.

The November contract actually prices the period from mid-Nov to mid-Dec which will be after the event and vol would have reset lower by then.

So if there's an event premium building for early November, the October contract is where it sits, and October VIX futures gets pumped. I'd be buying October call spreads rather than November for this one.

[Imran Lakha | Options Insight @options_insight]

Something genuinely strange is going on in equity vol. Skew is hitting extreme lows right before mid-terms and a seasonal period where vol typically rises.

Normally the street is short skew. Clients buy puts and sell calls, dealers wear the other side. On a sell-off, vol catches a bid as dealers rebalance VEGA. On a rally, vol gets offered for the same reason.

Right now the street is long skew. That sharp rally blew clean through all the long upside strikes, turned them into downside, and left dealers short a load of upside beyond that.

So the sign flips. They pick up vol on the way down and lose it on the way up. Which is why, I think, every time we make new highs vol goes bid, and every time we sell off vol gets offered. The exact opposite of how equity vol normally behaves. Owning the downside vol also means they have to pay more THETA for the position.

This is why skew has flattened to the lows of the year. Nobody is willing to pay theta for something that hurts them every single day as the vol dynamics a working in reverse.

The big question is, does this all change this week after August expiry?

[Reformed Tr🅰️der @Reformed_Trader]

$ASTI clear breakout on increasing volume. Today pulling back currently on lighter volume. The 8ema has crossed above both the 20sma and 50sma which it failed to do both during the April spike. This current signal is more in line with December which started the breakout.

*NFA

[Reformed Tr🅰️der @Reformed_Trader]

$ASTI now getting a 2nd tailwind. Space+Solar. Sweet spot heading into June

*NFA