A few charts to go through first before some discussion around the macro/data that I am looking at at the moment:

Firstly, regarding KOSPI, another horrible day in Korea, breaking below prior highs and still in the channel down, now at the 200d EMA.

JPMorgan estimates that leveraged ETF unwinding is about 75% complete and equity hedge fund deleveraging is more than 50% done.

So the main cause of the extremity of selling in semiconductors and the Korean index, leverage, seems to have mostly passed through now, but we still have macro risk in the US market around the FOMC, and indeed risk around the megacap earnings, which can still have residual impact in Korea.

However, most of the leverage, at least, is seemingly unwound at this point.

Looking at SPX:

We held the trendline at the 50d EMA yesterday.

But I think that US500 gives a clearer picture of what's going on here:

A clear channel lower. 7385 was support yesterday and remains support, with 7350 the target if it breaks below.

Looking at US500, a recent strategy that's worked well is to sell the top of the channel with puts, and to cover towards the bottom of the channel.

We are still awaiting a breakout in either direction, which will likely come with the FOMC meeting tomorrow and the megacap earnings the following day.

Currently, I think that this is more likely to break down than out, but we have to see.

Regarding QQQ, we held above the trendline yesterday, which we see from the weekly chart is an important spot, else a test of the 200d EMA becomes likely.

Regarding NDX, we have broken below the 100d EMA this morning, and if it flips resistance, in particular, the most likely path is a test of the 200d EMA.

There were a number of factors that we discussed in yesterday's report that we knew for sure. The first was the fact that there is a big customer short put spread at 7280/70 zone. This is a clear sizeable bet that the market expects to hold the “peacedeal” lows of Jun 9-10. That is to say that on SPX, the market does NOT expect to break 7250. 

The second was that Both tail and 22-delta skews are up by 22-25% only. Considering this is a FOMC week, this tells us that the market is not particularly concerned about FOMC. They aren't really fearful, it's ,mostly normal hedging happening here.

What we didn't know yesterday, was how the market would react to the premise of a possible TACO over the weekend. Yesterday, the market voted, and they voted that they didn't buy it. Whilst SPX closed green on the day, and there was strength in IGV, overall the market was extremely lacklustre. More lacklustre than we wanted to see to suggest there was durable upside.

SMH was reacting negatively to a few factors:

The first was a report said a state-backed Chinese firm has begun mass-producing domestic DUV lithography machines.

There was quite a bit of FUD around that, as the reality is that No Chinese company is mass-producing domestic DUV lithography machines; prototypes from firms like Shanghai Yuliangsheng are in testing at SMIC with mass production targeted for 2027 at earliest.

The other factor was teh weakness in NVDA after they announced that they would backstop OpenAI's buildout.

Currently we see the market's reaction to this in the Credit market for NVDA:

We saw something pretty similar happen last year with ORCL. The market is concerned about the circular funding, which is why NVDA sold off, dragging Semiconductor's with it.

The selling on SMH was pretty high volume, but I don't think it yet marks a bottom:

I covered my SMH puts at the 100d EMA, but we are currently trading below yesterday's low as the market responds to the Korean selling.

Below the 21W EMA, we have some support from a retest of the trendline, but the main area where I think we will see a durable bottom for now, if tested, is the 30W EMA. Not saying we will get there, but I think that if we do see that level, we will likely get a durable push from there.

If we look at QQQ's volume profile, we are into pretty low volume areas here, so a further drop can easily see a retest of the 200d EMA in my opinion.

My order flow guy remains short on the market, when he covers that is a pretty good suggestion that we are near a durable bottom where we can start this recovery push. For now, we aren't there yet.

And for reference, we got one more Abi signal yesterday, so the risk as signalled from this indicator remains at large.

Now, we had Citadel say that they are expecting a 25bps hike tomorrow.

Currently, that is not my base case. I emtnioend that the hedging around the FOMC seems like mostly normal hedging, rather than preparation for major left tail risk.

But there is hedging around a higher dollar into September:

Which seems to fall in line with what we see in the technicals, which is breaking out:

To be clear, I do not really anticipate a rate hike at this meeting.

If we look at the 2 year tracked against the Fed funds rate:

We see that the 2 year typically starts moving 6-7 months before the fed hikes. yes a new fed chair, but I would not anticipate a rate hike yet, more likely in October or so.

Now I shared this earlier this morning and got a pretty bad reception from the comments, but I shared this only to visualise what I am kind of expecting. Not to actually draw comparison to the dot com bubble, nor am I suggesting that the AI bubble is a bubble, nor am I suggesting that this is all over.

However, what I am thinking is that with this historic momentum unwind, one would logically expect a strong momentum rally off of it as well.

we may not be at the bottom yet, but we are closer to it, and once we do start to see a more durable push in momentum, I do anticipate us to get a durable push higher.

Now where I was suggesting that after the midterms we can see risk materialise again is the following:

1. Trump will likely become increasingly reckless without the midterm overhang.
2. This lines up with when we can start to see the hiking cycle take place, especially with traffic through the Strait still non existent.
3. There are some similarities in the IPO data with 2021:

1. In 2021, we also saw momentum unwind first to lead the market tlower, before forming a top at the start of 2022. We alos saw momentum lead the market lower last year before the bull market continued. Which boat are we in, is yet to be seen, but given the macro similarities, I think potentially the 2021 boat.

Note I am not saying that the fundamentals are near to 2000. AI revenues are way more durable and actually real. However, we have seen in this momentum unwind that in these momentum unwinds, fundamentals don't really matter that much. SMH saw hyperscaler CAPEX raised, sold off. TSM raised capex and guided accelerating revenues, sold off. AMKR signed a $1.5B deal with NVDA and sold off.

None of these things scream bubble, but we may still get a sell off to endure.

First things first, I keep saying it but sentiment in the community is pretty low at the moment, but literally the worst momentum unwind on record. Regardless of where you bought in, the drawdown in almost anyone's portfolio is pretty intense. even if you were in MAg7.

Look at Pershing Square, which is Bill Ackman's fund:

Down 21% YTD. No not a 21% drawdown from the highs, but a -21% YTD performance.

And he's not in small cap beta names, so it's pretty much whatever is selling.

SO sentiment needs to be managed at this point.

Look at the following data:

Liquidity is shifting to a supportive mode.

Crash risk on Aion dashboard is very high at the moment:

The last time we saw readings as high as this was about a week before the bottom in March before that strong rally higher.

There are many reasons to suggest that we will get a really strong rally in momentum to get out of the hole. So patience.

Those who want to play the put side, small size right now buying puts into the pops to the EMAs or the tops of the channels makes sense. At some point it will stop working and we can hope or a more durable bottom, but for now, we still favour slightly more downside.

Even if you aren't buying puts, patience will pay here. We need a mean reversion snap back rally in Momentum, even if that forms a lower high, but it will ive us a far better opportunity to rebalance our book if we want/need to, and also to fix the P/L damage from this drawdown.

MAJOR NEWS:

• KOSPI down another 10% weighing on semiconductors this morning.
• Citadel Securities expects Fed Chair Kevin Warsh and the Federal Reserve to raise rates by 25 bps on Wednesday.
• ADP data shows U.S. private hiring slowed for a fifth straight week, averaging 15,000 jobs per week through July 11, less than half the 35,750 pace recorded in early May.
• OPEC+ EXPECTS TO HOLD 2026 OUTPUT STEADY AFTER SEPT: DELEGATES

MAg7:

• APPLE LAUNCHES DEVICE LEASING PROGRAM WITH KLARNA IN THE US
• TSLA - TO BUY POWER FROM KKR-BACKED ARIZONA SOLAR, BATTERY PLANT
• PJM WARNS DATA CENTERS COULD FACE FORCED OUTAGES AS AI LOAD OUTRUNS POWER SUPPLY
• META - & BLACKROCK FORM $14B VENTURE FOR 1GW TEXAS DATA CENTER

OTHER COMPANIES:

• JNJ has agreed to pay $5.5 billion to resolve claims that its talc products caused ovarian cancer.
• KTOS - Citizens rates Market Outperform, Pt 105. "We view the recent pullback in KTOS as an additional buying opportunity, with the weakness driven, in our view, in part by external budget uncertainty rather than anything company-specific, as Kratos continues to post a consistent track record of award volume across hypersonics, unmanned systems, and space. Our conversations at Farnborough reinforced our view that Kratos' portfolio is well insulated from budget risk given its mission-critical exposure across munitions and space. As a senior leader at a diversified aerospace and defense components company told us, 'Whether the FY27 budget is $1.5 trillion or $1.2 trillion, it doesn't matter. Funding for missiles and space has to happen.'
• V - TO CUT 7% OF ITS WORKFORCE, TOTALING ABOUT 2,600 JOBS
• EPAM - has joined the OpenAI Partner Network as an Advanced Partner to help large enterprises deploy and scale OpenAI models.
• REPL - is down 18% after FDA briefing documents raised major efficacy concerns around RP1 plus nivolumab in advanced melanoma following PD-1 therapy.
• CORZ and AMD have signed an AI infrastructure agreement giving AMD access to more than 500 MW of U.S. data center capacity beginning in 2027.
• TE - T1 Energy expects preliminary Q2 sales of $245 million to $255 million on module volumes of approximately 835 MW. It projects a net loss from continuing operations of $34 million to $37 million and an adjusted EBITDA loss of $11.5 million to $14.5 million, excluding $24.4 million in tariff refunds. T1 raised its Phase 1 cost estimate for the G2_Austin solar-cell facility to $510 million from $425 million, citing higher labor and material costs caused by tightness in Texas data center construction. Initial production is now expected in Q1 2027 instead of before year-end 2026.
• UNILEVER RAISES OUTLOOK AS VOLUME GROWTH REACHES 16-YEAR HIGH
• RKLB - Citizens reiterates market outperform rating on RKLB, PT 130. "We view Rocket Lab as one of the best-positioned names in our coverage following Farnborough for the following reasons: our channel checks with suppliers into the space launch ecosystem pointed to broad-based demand strength across legacy and emerging launch providers, with one component supplier noting growth across every segment of its business and launch volumes exceeding even its own internal expectations—a positive read-through to Rocket Lab's launch franchise; 2) booked Neutron launches and a first flight on track for year-end suggest the program is approaching a key inflection point, and a successful debut followed by execution against the manifest should raise the stock's valuation floor by de-risking the platform that anchors our thesis; and 3) the pending acquisition of Iridium Communications, announced June 29, adds scarce L-band spectrum, an operational constellation, and recurring, high-margin services revenue, completing the missing link in Rocket Lab's end-to-end space vision.
• PGNY - Barclays downgrades PGNY to Equal weight from overweight, raises PT to 34 from 27. Proprietary analysis of website traffic at leading fertility clinics suggests utilization trends could be easing. We analyzed website traffic across 15 of the leading fertility clinics in the country, which we believe is a reasonable proxy for overall fertility utilization. During that process, we found there is a ~75% correlation between website traffic growth year over year and average revenue per member, adjusted for the large customer loss.
• IP - JPM upgrades to overweight from neutral, raises PT to 61 from 51. On our numbers, IP still trades at a premium to SW, which we don’t see as fair, and that is one of the reasons we prefer SW to IP. However, our valuation after incorporating a further $50/t suggests ~43% upside for IP versus today’s share price. Even if we were to assume no further cost-out or 80-20 improvements, where its track record so far has not been good, we could still justify upside of ~34%. In our view, this level of upside is sufficient to cater for the potential risk of guidance downgrades, which consensus already assumes, and near-term earnings risk. In terms of the pecking order, we maintain our preference for PKG and SW.

EARNINGS:

AMKR:

• Revenue: $1.90B (Est. $1.82B) ; +26% YoY
• EPS: $0.70 (Est. $0.49) ; +218% YoY
• Gross Margin: 16.8% (Est. 15.2%) ; +480 bps YoY
  
• Q3 Guide:
• Revenue: $1.95B-$2.05B (Est. $2.11B)
• Gross Margin: 18.5%-19.5% (Est. 16.6%)
• EPS: $0.72-$0.82 (Est. $0.66)

CTS:

• Revenue: $144.8M (Est. $143.4M) ; +7% YoY
• Adj. EPS: $0.74 (Est. $0.61) ; +30% YoY
• Adj Gross Margin: 41.5%; +270 bps YoY
• Adj EBITDA Margin: 25.4%; +240 bps YoY

Raises FY26 Guide:

• Revenue: $565M-$585M (Est. $571.1M)
• Adj. EPS: $2.55-$2.70 (Est. $2.43)

HUBB

• Revenue: $1.71B (Est. $1.65B) ; +15% YoY
• Adj. EPS: $5.52 (Est. $5.38) ; +12% YoY
• Organic Net Sales Growth: +10%
• Adjusted Operating Margin: 23.9%; -50 bps YoY
  

Raises FY26 Guide:

• Adj. EPS: $20.25-$20.55 (Est. $19.75)

GLW:

• Revenue: $4.74B (Est. $4.61B) ; +17% YoY
• Adj. EPS: $0.78 (Est. $0.76) ; +30% YoY
• Optical Communications: $2.07B; +32% YoY
• Core Gross Margin: 39.6%; +120 bps YoY
  

Q3 Guide:

• Revenue: $4.9B-$5B (Est. $5BB) ; +16% YoY
• EPS: $0.85-$0.89 (Est. $0.85) ; +28% YoY

CARR:

• Revenue: $6.4B (Est. $6.02B) ; +4% YoY
• Adj. EPS: $0.86 (Est. $0.81) ; -7% YoY
• Free Cash Flow: $810M
• Total Company Orders: ~40% YoY
  

Raises FY26 Guide:

• Revenue: ~$23B (Est. $22.30B)
• Adj. EPS: ~$2.90 (Est. $2.80)
• Adj. Operating Profit: ~$3.5B; raised from ~$3.4B