OVERVIEW
Erratic, Event-Driven Price Action

🟥 Risk-Off: When in doubt, just sit out

• PPI shock: July’s Producer Price Index came in far hotter than expected, marking its biggest monthly jump since mid-2022.

• Rate-cut optimism fades: Earlier CPI-driven hopes for a September cut are now in question, with upstream inflation pressures flashing warning signs.

• Breadth reversal: QQQ, MDY, and IWM are all giving back recent breakout gains, with small caps at risk of testing key VRVP support.

• Environment: Price action remains headline-driven and choppy heading into the Fed’s September decision window.

What to watch: Key support retests across all major caps. In this regime, capital preservation takes priority over aggressive positioning.

MARKET ANALYSIS
Today’s Close is Critical

The market came into today riding the tailwind of a cooler-than-expected CPI print earlier this week, with rate-cut hopes pulling both the S&P 500 and Nasdaq to fresh intraday and closing record highs. That optimism hit resistance this morning.

The July Producer Price Index (PPI) — a key measure of wholesale inflation — came in scorching hot:

• PPI m/m: +0.9% (Expected: +0.2%)

• PPI y/y: +3.3% (Expected: +2.5%)

• Core PPI m/m: +0.9% (Expected: +0.2%)

• Core PPI y/y: +3.7% (Expected: +2.9%)

This is not a small miss — these are outsized beats across the board. In fact, the headline PPI month-on-month print just recorded its largest jump since June 2022 (credit: Wall St Engine)

🔍 Why PPI Matters

PPI tracks the prices that producers receive for goods and services. When these costs rise sharply, they tend to get passed downstream to consumers, showing up in the CPI with a lag. Historically, persistent PPI spikes lead to sticky consumer inflation — exactly what the Fed doesn’t want to see when debating rate cuts.

PPI can also move faster than CPI when supply chains tighten or input costs jump. For traders, this means it often acts as a leading indicator for inflation trends.

🏛 The Policy Implication

Earlier in the week, the CPI print had the market pricing in a near-certain September rate cut. Today’s PPI shock throws that into question — not because the Fed suddenly wants to raise rates, but because they can’t justify easing if upstream inflation is accelerating.

Fed officials watch PPI closely for signs that producer margins are compressing or expanding. Rising PPI with stable or falling CPI can mean companies are absorbing costs (margin squeeze), but when both trend higher, it signals inflation pressures are far from over.

Nasdaq

Market Breadth
% over 20 EMA: 56.43% | % over 50 EMA: 56.43% | % over 200 EMA: 66.33%

At the time of writing, QQQ is giving back all of yesterday’s gains, opening with a sizable gap down. There’s an unfilled low-volume pocket on the visible range profile down to $576.58 (≈ -0.64% from yesterday’s close) — a potential magnet if selling extends.

In theory, the cap-weighted leaders inside QQQ should hold up best on today’s news. If this morning’s weakness fades and reverses, it could simply mark the start of another chop phase.

The equal-weighted QQQE, while quieter in premarket due to lower liquidity, broke out cleanly yesterday — reclaiming its POC at $99.20 on heavy relative volume.

That’s the first real sign in weeks of money rotating beyond just the Magnificent Seven into the broader large-cap tech complex.

For now, this remains the market’s most resilient segment. The key downside level is the rising daily 10-EMA (≈ -1.46% from yesterday’s close). A retest there would be the current worst-case scenario worth planning for.

S&P 400 Midcap

Market Breadth
% over 20 EMA: 68.82% | % over 50 EMA: 66.58% | % over 200 EMA: 56.05%

Midcaps have been leading on market breadth, with a greater share of stocks trading above their 20-EMA and 50-EMA than the Nasdaq. The past two sessions have delivered massive breakouts on high relative volume, clearing the entire July 2025 sideways range.

That said — as of this morning, the weak PPI reaction has erased nearly all of yesterday’s +1.54% gain.

This is a sharp reminder of one of our core rules: 

You never size up ahead of Fed events, and if you do trade, keep position size minimal.

August–September seasonality is notoriously choppy, and this month has been no exception.

From here, we’re watching for a retest of MDY’s Point of Control (POC) near $579. Given the aggressive two-day run-up, a test today would not be surprising — especially if sellers press their advantage into the Fed window.

Russell 2000

Market Breadth
% over 20 EMA: 70.85% | % over 50 EMA: 68.10% | % over 200 EMA: 56.05%

Small caps have delivered the most pronounced breadth expansion of any capitalization tier this week. On Monday, only 36.99% of Russell 2000 constituents were trading above their 20-day EMA; by yesterday’s close, that figure had surged to 70.88% — a remarkable +91% relative increase in just three sessions.

This is the kind of aggressive internal rotation that typically signals a short-covering impulse and fresh speculative inflows.

That said, today’s premarket reversal is already retracing a portion of those gains, raising the probability of a deeper short-term pullback. The visible range volume profile (VRVP) shows the next significant high-volume support node at $225.30, which sits roughly -2.5% below yesterday’s close.

A move into that zone would effectively unwind a large share of the breakout impulse while stress-testing the durability of the recent breadth surge.

From a tactical standpoint, the ability (or inability) of small caps to defend that $225 area will be a critical tell for whether last week’s expansion in participation was the start of a sustainable leadership shift — or merely a fleeting squeeze within an otherwise range-bound regime.

🧠 Mindset Check: The Stock is jus the vehicle

Too many traders make the mistake of falling in love with a ticker. They cling to it like a business partner—not a tool. This is dangerous thinking. The symbol isn't what's important. What matters is whether the setup gives you an edge.

1. The Vehicle Principle

Every trade is about asymmetry—not the company name. Expectancy is calculated as:

EV = (Win % × Avg Win) − (Loss % × Avg Loss)

This equation is blind to branding- it's only the probabilities and payoffs matter.

2. Familiarity Bias Leads to Poor Decisions

Behavioral research shows that when investors trade familiar names, they:

• Are 1.34× more likely to hold losers and cling to winning positions—unhelpfully—than when trading unfamiliar stocks.

• Generate kurtosis in performance that’s nearly 28% higher, meaning returns are more erratic and riskier.

3. The Disposition Effect: Survival Kills Returns

Classic behavioral finance research (Shefrin & Statman, 1985) documents how people habitually:

• Sell winners too soon and hold losers too long, despite evidence showing many winners continue outperforming and losers continue deteriorating.

4. Information Bias, Anchoring & Overconfidence

Other biases subtly infect decisions:

• Information bias: Traders focus only on familiar or confirming data, ignoring contradictory signals.

• Anchoring: We anchor to initial reference prices or news and adjust too little—even when facts change.

• Overconfidence: Recognizing patterns in “known names” breeds inflated belief in your edge—leading to overtrading.

The Mindset Shift

Instead of asking:

Ask:

Detach from the company and stick to the edge. The stock isn’t the hero—it’s the transport. Y

ou only care about the direction it’s going when it aligns with your playbook.

FOCUSED STOCK
QBTS: Elite Growth, Textbook Structure

ADR%: 8.64% | Off 52-week high: -9.3% | Above 52-week low: 2231.2%

It goes without saying — this is one of the most explosive growth leaders on our radar, delivering a staggering +2,000% move over the past 52 weeks (yes, that’s real).

Since its sharp rally in early May 2025, QBTS has been carving out a clean, textbook ascending bull flag, consistently forming higher lows and building a multi-week base. This type of pattern is exactly what we look for in elite momentum names:

1. A large, high-velocity move.

2. Momentum retention (no deep retracements).

3. A tightening structure that compresses volatility.

Near-term outlook: Given today’s premarket weakness and market-wide breakdown, the probability of a breakout in today’s session is low. That said, QBTS remains a top-tier relative strength leader and belongs on any high-conviction watchlist.

When leaders like this base tightly after a major run, they often produce another high-R multiple leg once conditions align. This one stays firmly in our focus.

FOCUSED GROUP
XAR: Aerospace & Defense Holding Pattern

We’ve been actively trading XAR, the aerospace & defense ETF, for some time — particularly as it’s been consolidating in a well-defined bull flag since peaking in mid-July 2025.

Leadership within the group remains intact, with several standout names (e.g., KTOS) continuing to outperform their peers. Yesterday’s intraday bounce directly off XAR’s Point of Control (POC) reinforced that demand is still present to defend undercuts within this range.

For now, the structure remains constructive. A decisive breakout from this flag — especially on expanding relative volume — would confirm the next leg higher. Until then, we treat XAR as a patient hold/watch candidate within the current macro chop.

Q&A
Got a trading question? Hit reply and ask!

Q: “How come you don’t show short trades? Does short selling not work as good?”

Short selling works. Some of the best traders in the world have built their careers on it. The Short Bear and Kristjan Kullamägi are two who have made huge returns shorting stocks when the right conditions lined up.

So why not show more shorts here?
It is not because short trades fail. It is because shorting is a different game and much harder to make simple and repeatable for most traders.

The market has an upward bias.
A stock is ownership in a business and over time most businesses create value for shareholders. The market naturally drifts higher in the background. When you short, you are swimming against that current.

Profit cap vs unlimited upside.
When you short a stock, your maximum possible profit is 100%. That only happens if the stock literally goes to zero- which is extremely rare, even in major bankruptcies.

In reality, most shorts will cover for far less than that, often 10–30% gains, because the risk of a sharp reversal is high.

On the long side, your upside is theoretically unlimited because there is no ceiling on how high a stock can trade. A $50 stock can go to $100, $200, $500 and beyond if the company keeps growing and demand keeps expanding.

That asymmetry in potential payout is one of the main reasons professional traders still lean long over decades.

Different trade structure.
When a stock breaks down, the move is usually sharp and fast. Parabolic mean reversion shorts are a good example — you can make a lot in a few days. But those downtrends rarely last for months the way a strong uptrend can. On the short side the magnitude can be bigger but the time window is much smaller.

Extra complexity.
Borrowing shares, paying borrow fees, margin requirements, and the fact that a short position can in theory go against you without limit — all of this makes shorting more complex to manage and harder to execute cleanly.

Our approach.
We keep things simple and high probability. That does not mean we never short. When the setup is clear, the risk is well defined, and the market favors it, we will take it.

For most market conditions, the best risk to reward and easiest trade management still comes from the long side.