Trading Desk

XOP

US30Y

HSI

00700.HK

BABA

RUT DJI

The sequence this week matters more than any single line on a chart. Easing oil and yields gave the market room to rally on Monday, and AI leadership carried ES, NQ and NDX to new highs on Tuesday. Then the midweek surge in yields tested that rally. The indices recovered into Friday, but the recovery did not bring the rest of the market with them. That is the distinction between my tactical call and my macro view. The NQ long captured the move I expected; the remainder was stopped out when the retracement extended. I still expect NDX to extend its highs and SPX to print one of its own. RUT continued to weaken, and DJI keeps underperforming SPX. Businesses outside AI remain more exposed to the war's input-cost and financing pressures. September's flash PMI showed both strong activity and the steepest rise in input costs in nearly four years. The economy can look strong in the headline while the cost shock keeps building underneath it.

This is why I keep coming back to NVDA, SOXX and KOSPI. If the AI complex keeps carrying the indices while RUT and DJI fall further behind, another index high would only sharpen the divergence. My view remains that the rally can run into a major swing high in the coming weeks, followed by sizeable declines in the months after.

SOX NVDA SOXX

NVDA, SOXX and KOSPI remain the bellwethers of this bull run. NVDA has yet to hold above 230, SOXX is approaching generational resistance around 580, and KOSPI has already shown how difficult it is to hold above 7.1K. These are the names and levels I am watching to judge whether the AI trade can carry the indices further.

SOX has followed the dot-com script almost exactly. I first showed you this chart back in June, before SOX peaked. So much for "this time is different." If it continues to follow that script, my call for a major swing top in the coming weeks should play out. I still expect NDX and SPX to print new ATHs, but I do not expect SOXX to follow by printing a fresh ATH.

That said, 580 should be very strong resistance. If SOXX takes it out alongside NVDA breaking above 230 and KOSPI above 7.1K, my thesis of an eventual collapse should weaken. Given the broader cross-asset technicals, an oversold rebound in Treasuries could well provide the push these three need to make the break. Stay vigilant.

GOOGL

RB1!

PLTR

VIX

BZ1! CL1! DBA

Back in 2021, inflation was running wild and the Fed still had not hiked. In November, the administration signed another $1.2tn spending package. That was when we first warned of the risk of stagflation that rhymes with the 1970s. The Fed tightened the following year, and inflation came down. Trump campaigned on reducing deficits and tackling the debt problem. As we head into the midterms, it is clear he has failed to deliver. That is putting it mildly. His administration have been doing the opposite of what is needed to salvage either problem.

The 1970s offer a familiar sequence. The 1973–74 oil shock drove energy costs sharply higher, and inflation reached 11% in 1974. The Fed tightened, then eased before inflation was fully contained. Inflation fell to 6% in 1976, only to climb again as the second oil shock arrived in 1979. Inflation rose above 13% in 1980. Volcker then tightened aggressively, taking the fed funds rate to around 19% in 1981. The 10-year Treasury yield rose from around 6% in the early 1970s to above 15% in 1981.

It's all just the same thing over and over. We just can't help ourselves.

The war is stagnant. No matter how many headlines about deals and reopening you see, there has been no real progress. The self-engineered TACOs are exactly what I expected and outlined in recent Tactical Positioning.

Unlike most prices, oil has second-order effects. It feeds into transportation, chemicals, agriculture and food production. Much of the shock has yet to reach consumers. Margin compression is ongoing: Campbell's adjusted gross margin fell 240bp YoY in Q3 and 190bp in Q4; General Mills' fell 90bp in its latest quarter. The next phase is passing those costs on to consumers. Food prices are the thing to watch, given the weight of food in inflation and its exposure to transportation and fertilizer costs.

If I am right—and let's hope I'm not—that the war drags on for years, the moves in oil and yields and the cross-asset repricing we have seen over the past seven months are only the beginning.

I posted this midweek but was quickly banned:

“Should the war drag on, the 150bp rise in 2y yields and 120bp rise in 10y yields since the war began are just the beginning. The inflation shock has yet to fully work its way through the economy. Food prices have yet to reflect the cost pressures that will inevitably feed through from higher transportation and fertilizer costs. Oil inventories continue to be drawn down at an unsustainable pace, with inventories in many regions already at minimum operating levels.

I expect major swings in the years ahead. There's gonna be a lot of money to be made trading through this mess.”

01810.HK

NIFTY The downside path I laid out continues to play out. For India, oil is a cost rather than an earnings cushion. It pressures the import bill, the rupee and inflation while higher global yields make the backdrop harder for equities. August food inflation reached 5.95%. NIFTY remains below the broken ascending trendline and 24.34K, with 22.1K-22K next. A break and hold below 22K opens further downside.

GDXWhen GDX gapped higher in August, I said I did not like the gaps it left behind. If my view of the war's trajectory is right, persistent energy pressure will keep pushing yields higher. Even with geopolitical safe-haven buying, gold will remain under pressure. Gold could break its July low. If that happens, I expect GDX to fill those August gaps.

HG1! Copper held up through another round of hawkish Fed repricing and a firmer dollar. The stronger signal this week came from the physical market: SHFE copper stocks fell 15.9%, while the LME cash premium over three-month copper widened. The improvement in Chinese buying I noted last week is now showing up in inventories, not just the Yangshan premium.

Tariff uncertainty is still pulling metal into U.S. warehouses and tightening availability elsewhere. If Washington backs away, some of that regional tightness can unwind. It will not fix the supply problem. Higher yields and a stronger dollar remain risks, but so far they have not overwhelmed the physical bid.

USDJPYOur tactical short around 155.55 was invalidated when USDJPY broke above that level, with clear follow-through this week. Japan and the US intervened verbally on Friday, reiterating their concern over yen undervaluation.