OVERVIEW 
Inflation Softens, Rate Cut Bets Surge

🟢 RISK-ON

• July CPI came in cooler than feared — headline +2.7% YoY (vs. 2.8% est.) and core +3.1% (slightly above 3.0% est.).

• Rate cut odds for September jumped to 99.9% (from 85% pre-release), with traders now pricing additional cuts for October and December.

• Small caps — the most shorted segment in the market — ripped higher on massive relative volume, igniting a short-squeeze breakout.

• Trump extended his 90-day pause on higher tariffs for Chinese goods, adding to the relief bid.

• Next catalysts: Thursday’s PPI (wholesale inflation) + the Fed’s Jackson Hole gathering later this month.

The edge right now is in small caps, midcaps, and AI-linked momentum names showing high-volume breakouts.

MARKET ANALYSIS
Inflation Data Saved The Day

July’s inflation print came in just right for markets — headline CPI at 2.7% (slightly under expectations) and core CPI at 3.1% (just a touch above).

Translation: prices are cooling without flashing recession alarms.

Traders loved it. Odds of a September Fed rate cut jumped to 99.9% (from 85% before the release), and the market is now betting on more cuts into year-end. That’s why small cap, who are the biggest winners when borrowing costs drop, smoked the rest of the market yesterday (combined with high short interest).

On the policy side, tensions with China eased a notch after President Trump extended his 90-day pause on higher tariffs.

Next up: Thursday’s PPI (wholesale inflation) and the Fed’s big Jackson Hole meeting later this month. Both will set the tone heading into the September rate decision.

The takeaway → Cooling inflation + possible rate cuts = fuel for risk assets… but with breadth still generally weak, it’s not a free-for-all.

The real edge will be spotting which stocks/sectors can turn this macro tailwind into actual sustained leadership.

Nasdaq

Market Breadth
% over 20 EMA: 52.47% | % over 50 EMA: 51.48% | % over 200 EMA: 62.37%

First, the divergence we’ve been highlighting — ascending price in QQQ vs. declining volume — typically resolves with a breakdown.

That breakdown didn’t happen, and the shift can largely be credited to new rate cut expectations being priced in, which naturally lift equities across the board.

More importantly, it’s the equal-weight Nasdaq 100 (QQQE) that stood out. Yesterday, QQQE printed a surge in relative volume, reclaiming its daily 10-EMA.

As of premarket, it’s gapping >1% higher, clearing its Point of Control (POC) level — a sign that money may finally be flowing back into the broader market, not just the mega-cap leaders.

Note: This is the first real evidence in weeks that weak breadth could be resolving in a constructive way. However, one day is not a trend.

Breadth expansion needs to sustain for several sessions with confirmation from multiple sectors before we can confidently say the cycle has turned.

S&P 400 Midcap

Market Breadth
% over 20 EMA: 55.11% | % over 50 EMA: 60.59% | % over 200 EMA: 52.61%

Midcaps, which have been lagging the Nasdaq (even its equal-weight version) and carrying higher short interest, staged the biggest upside reaction to yesterday’s softer inflation data.

On very high relative volume, MDY broke cleanly above both the daily 10-EMA and 20-EMA — and as of premarket today, it’s essentially reclaimed the entire range built since early July.

From a technical perspective, this is a textbook catalyst-driven breakout: coming off a pullback, clearing key moving averages, and doing it on volume that confirms real demand. The fact that it’s macro-driven adds conviction and we are bullish for the next month or so of action for the midcaps (leading up to the September rate cut).

Russell 2000

Market Breadth
% over 20 EMA: 59.51% | % over 50 EMA: 60.83% | % over 200 EMA: 50.25%

Small caps were the clear leaders yesterday — and right now, they’re the highest-priority segment on our radar.

This group carries the highest short interest relative to all other market-cap segments, meaning that with a Fed rate cut increasingly being priced in, there’s a significant amount of institutional short exposure potentially trapped on the wrong side of the trade.

Yesterday’s breakout reflected exactly that — one of the largest bullish candles we’ve seen in the Russell 2000 in months, coming on huge relative volume.

Technically, this move pushed IWM above what now looks like a major cup-and-handle formation that developed out of a powerful inverse head-and-shoulders base. According to Thomas Bulkowski’s research on cup-and-handle’s”

• Overall performance rank: 3rd out of 39 patterns

• Break-even failure rate: 5%

• Average rise: 54%

• Throwback rate: 62%

• % hitting target: 61%

Given the combination of short-squeeze fuel and high-probability technical structure, small caps now represent one of the most asymmetric opportunities in the market — provided this breakout holds.

Note: To anyone interested, this data comes from Thomas N. Bulkowski’s amazing book: Encyclopedia of Chart Patterns. This is a must read for all traders.

🧠 Mindset Check: Why Rate Cuts Matter

A lot of traders think rate cuts are the bullish catalyst, but it’s rarely the cut itself that does the heavy lifting. The real move often starts well before the policy change, during the anticipation window.

1️⃣ The market prices in the future, not the present

Stocks don’t wait for a rate cut to happen- they discount it. When the market believes there’s a >70% probability of a cut within 30–45 days, forward-looking buyers step in.

That means pension funds, asset managers, CTAs, and systematic strategies begin adjusting exposure now, not after the Fed acts.

This front-running can trigger multi-week rallies simply because enough players believe policy will loosen.

2️⃣ Liquidity expectations feed risk appetite

Even before a cut is delivered, expectations reset the liquidity narrative. Rate cuts signal that:

• Future borrowing costs will be lower, boosting corporate investment.

• Discount rates in valuation models will fall, making future earnings more valuable.

• Risk premiums compress as investors shift capital toward equities instead of bonds.

In practice, this anticipation phase often coincides with multiple expansion (P/E ratios rising) even without earnings growth, because the cost of capital is expected to ease.

3️⃣ Positioning fuel: shorts get trapped

In the 30–40 days before anticipated cuts, short interest in weaker segments (small caps, cyclicals) often runs high.

Once rate cut odds spike, these names can see outsized rallies, not because fundamentals suddenly improved, but because shorts are forced to cover into a changing macro narrative (we are seeing this right now in the heavily shorted small caps).

4️⃣ Anticipation rallies outpace post-cut returns

Looking back at five cutting cycles (1995, 1998, 2001, 2007, 2019), the median S&P 500 return in the 35 days before the first cut was roughly +4–6%, while the 35 days after were far more mixed.

Why? Because once the cut is delivered, the new policy stance is fully priced in, and attention shifts back to earnings, economic data, and growth risks.

Remember!
The “anticipation effect” is really about asymmetry. This means you want to position where the narrative, liquidity expectations, and positioning imbalances are all leaning in your favor before the official policy shift.

It’s not about predicting the Fed (never try to outsmart the Fed…), it’s about recognizing when the market has already made up its mind and starting to move in size.

FOCUSED STOCK
AMD: This Is Ready To Go

ADR%: 3.86% | Off 52-week high: -4.1% | Above 52-week low: +128.8%

AMD, a cornerstone of the AI semiconductor theme, is setting up for a potentially high-probability breakout following yesterday’s surprise sector-wide push (see XSD chart).

Technical Structure

• Pattern: Tight volatility contraction right on rising 10-EMA and 20-EMA.

• Volume: Relative volume has declined steadily for 5 sessions, matching a textbook volatility contraction pattern.

• POC: $174 remains the key volume node — it was undercut earlier this week but quickly reclaimed yesterday, showing aggressive dip-buying interest.

Execution Plan

Given the high visibility of this setup:

1. Opening Range Breakout: Use the first 5–15 minutes to define the day’s high. A decisive push through this level on >1.5× relative volume (on higher timeframe) offers the cleanest long trigger.

2. Fade Protection: If AMD gaps up but stalls under opening range highs, avoid chasing. Instead, look for a pullback toward short-term EMA support for potential re-entry.

This is literally one of the strongest names in the market’s dominant theme.

Whether it breaks today or next week, it remains a high-priority focus no matter what.

FOCUSED GROUP
QTUM: The AI Trade- Alive & Well

QTUM delivered a strong breakout yesterday, pushing sharply higher on well above-average relative volume right into (and through) its now rising daily 10-EMA and 20-EMA. Price also reclaimed and pushed aggressively above its Point of Control (POC) just below $94.

Technical Context

• Recall the August 1, 2025 breakdown: QTUM printed a high-volume doji reversal that marked a V-shaped recovery pivot.

• Yesterday’s breakout mirrors that reversal setup — only this time with a clean momentum surge through short-term moving averages.

• The reclaim of POC on expanding volume suggests buyers are reasserting control at a structurally significant level.

Sector Implications

• QTUM represents the quantum computing segment (RGTI, QBTS, IONQ, QUBT, etc.), which is both high-ADR% (high volatility potential) and firmly within the speculative AI ecosystem.

• Alongside yesterday’s semiconductor strength, this is an important read on risk appetite. Strong flows into the most speculative areas often act as very powerful tailwind for AI-linked momentum trades, and it tells us big money is still happy to take on risk.

Our takeaway: If QTUM and peers can hold above POC and build on this volume thrust, it adds confirmation that the market is still willing to extend into higher-beta, higher-risk corners of the tech complex.

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

Q: “The market rallied and you guys didn’t expect it- what happens now?”

First rule of trading: nobody knows the next tick.

Not us, not Goldman Sachs, not Paul Tudor Jones. And yes, for the Wolf of Wall Street fans out there… it might go up, down, or f*ing circles.

We’re not geopolitical analysts. We’re not macro economists. We’re traders. Our edge is built on understanding two things:

1. Price structure — where the market is in its cycle.

2. Volume profiles — where real supply and demand are stacked.

That’s why we have learned to use if → then scenario maps instead of single-direction forecasts. We prepare both sides, define the triggers for each, and only commit capital when those conditions are met.

Yesterday’s breadth expansion? It wasn’t a “must happen” event — but it didn’t need to be.

• If breadth had continued to roll over → short triggers in weak sectors were ready to fire (or simply maintaining high cash position).

• If breadth expanded (what we got) → long triggers in select AI/mega-cap leaders were already in place.

The rally tripped our upside plan. We leaned in. No ego, no macro narrative, just disciplined execution on pre-defined price and volume conditions.

That’s the difference between entertainment and trading. Forecasting is the former. Preparation is the latter. And the latter is how we win over time.

Every dollar risked on a prediction is a dollar bet against uncertainty itself. That’s a losing game. The only way to win consistently is to pre-define your triggers, manage size, and let the market decide which side pays.