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Good morning partner,
Few things to cover this morning:
Yesterday’s Session
Markets are still tame even after the latest inflation data came after yesterday’s PPI release.
We had a breakout to all-time highs in the S&P 500, yet the leadership underneath the market remains lackluster, and I believe we’re shifting into a clearer message now.
Two scenarios I’m watching develop:
Tug-of-war between the AI/tech concentration and the HALO real economy names
Growth shock/stagflation beginning to influence how different sectors get treated
So far it looks like there’s a bit of uncertainty and disagreement building up between these two scenarios.
Hence the reason why no clear leadership or path on the index has revealed itself.
Whenever markets are this quiet and indecisive, it usually takes a big move or news item to sway outlooks in either direction of the scenarios now on the table.
Either way, I believe government spending can help fix both of these scenarios into a better environment for all.
Let’s take a look at yesterday’s leaders and laggers:
Industrials, Energy, Technology.
Seems like a quiet day was still led by the AI-related players of the economy.
From industrial players reporting earnings and increased compute backlogs, to the energy providers and Iran beneficiaries on the chessboard.
Notice the direction shift from yesterday…
Now consumer defensive names are lagging, whereas the growth shock scenario build helped them yesterday.
With AI rallies come other participants catching along, which is the ultimate tell of where leverage is right now.
With the dispersion trade unwind (VIX vs VIXEQ), there’s not that much of a need to hedge the AI concentrated bets across the books.
Making it possible for other sectors that were supposed to be replaced by AI go up along with AI.
Like Software (now up over 40% from the lows in most cases.)
A Race to Zero
OpenAI celebrates reaching $40 billion in ARR.
That sounds great especially as they were just at $20 billion at the beginning of the year.
Still,
Even if they continue to see this much uninterrupted growth, it likely won’t be enough to allow them to cover their over $5 trillion in commitments now.
This is why you see Oracle’s debt go into junk status, and the same thing happening to others that rely on OpenAI for their backlogs.
What’s worse…
Token prices are down over 40% since May 2026.
Meaning OpenAI now must 2.5x its volume just to meet old revenue targets, all while they keep signing up for new commitments that most likely will take decades to pay.
Remember NVIDIA’s $500 billion bailout injection into OpenAI last month?
How about OpenAI’s chief revenue officer leaving the company yesterday after just one year of service.
It doesn’t take that much digging to realize the company won’t make it, and will be forced to switch to an open-source model by the time the lenders come knocking on the door.
News
30yr Bond Sales Hit 2001 Highs as the US deficit begins to worry investors about the sustainability of the current market and fiscal path.
Trump Switched Strategies on Iran as he is now looking to attack them in an economic isolation way. This decision comes as the US has admittedly run out of ammo to continue escalating the attacks on the nation.
J.P. Morgan Boosts Salesforce outlooks after quoting that AI fears around the software space are mostly overblown. Funny they should say this, we’ve been buying the software bottom since June.
Tariff Refunds are Here to boost consumer earnings this coming quarter, with companies like Nike, FedEx, and Costco looking to receive just under $1 billion each in refunds that likely trickle down to EPS.
Movers & ES Levels
Workday 📈 Jumps over 20% as Silver Lake is in talks to buy the company altogether. A true “buy the rumor, sell the news” moment for our portfolio, now up 75% on this position since June.
Netflix 📈 Rose by 5.4% as Bill Ackman looks to take another swing at buying this discounted stock. I was looking at Netflix earlier this year, I think it may be time to do an updated dig through it for you.
Coherent 📉 Joins the AI losers after an 8% drop on weaker results and guidance, this was one of the so-called “bottleneck” stocks in the AI race.
Cerebras 📉 Lost 12% after its quarter showed the AI chipmaker swinging into a loss. This is the 5th or 6th AI name that quotes weaker demand and pricing power this week.
Now let’s get into some ES levels for today.
We finally got a decent move to create a new distribution on the futures session.
However,
This breakout may have been the market’s way to force dealings and get things moving again.
I see $7,825 - $7,800 as a key area today, as it represents the upper section of a new - smaller - “b” shaped distribution.
Simply put, losing $7,800 and closing the week below it would create a highly probable reversal toward $7,720 and even $7,650 if we lose that.
I would favor that move unless we close above $7,800 today, the reason being that a dispersion trade is quickly unwinding now (VIXEQ falling to meet the VIX.)
Mechanically, that unwinding would create a bid for the VIX, and therefore wash out the CTAs that were forced to buy on the upward momentum in the S&P.
That’s one scenario.
The other could be new all-time highs, but for that we MUST close above $7,800.
Portfolio
New all-time high for the portfolio, still over 50% in cash.
This cash balance will likely increase as we take profits on a big 20% move in one of our holdings last night.
My AI long/short equity spread has swung back into profit as the SMH ETF broke above a key level given in a publication from last week.
All things considered, we are doing well with two other acquisition names in the pipeline.
One of them is beginning to show constructive price action now, and might make it to the portfolio as soon as next week. Click here to read my deep dive on it.
By the time August ends, we’ll have a full quarter of operating data which looks like:
12%+ performance
<6% annualized volatility
2.0x Sharpe ratio
<2% max drawdowns
It’s like having your own ETF that compounds your money and isn’t allowed to blow up…
For $2/day, it remains unmatched with whatever else is available out there!
Here’s the positioning update for today’s premium members:
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