TMAD Weekly: What Does the Flow Says + Top Trade Ideas
$XBI $ARKG $DELL $ZETA
Hi everyone,
The July employment report delivered a clear disappointment. Nonfarm payrolls fell by 23,000 jobs against expectations of an 85,000 gain. The economy actually lost positions on a net basis. Private-sector hiring managed only 30,000 new jobs versus the 78,000 forecast.
Wage growth slowed to just 0.1 percent month-over-month and 3.2 percent over the past year, both cooler than expected. The unemployment rate edged down slightly to 4.1 percent from 4.2 percent, the one mild positive, while the broader underemployment measure stayed flat at 7.9 percent and labor-force participation slipped a touch lower.
In everyday terms, it became harder for the average person to find work or secure a raise, and the labor market looks softer than most had anticipated.
The next major data gate: the August 12 CPI report. Together with the survival of the current ceasefire, these two events now form the main conditions that must hold if the recent calm and rally.
Against this backdrop, markets had already sharply re-priced an Iran de-escalation story. The S&P 500 climbed roughly 5.7 percent in four sessions from its post-FOMC low, breaking out of a five-month sideways range. Bond-market volatility also compressed for the third time this year on the same hopes, with traders unwinding much of the protection they had held against higher long-term yields. Implied volatility now sits only modestly above realized levels, leaving little remaining cushion. In effect, the market prepaid for a quiet negotiation window rather than waiting to confirm one.
A closer look at how the equity rally unfolded shows it was not driven by aggressive new buying. Order-flow data from the S&P futures reveal a large net negative cumulative delta, meaning far more aggressive selling hit the market than aggressive buying, yet prices still rose. This pattern occurs when passive limit orders absorb the selling pressure. Combined with falling volatility, it points to systematic and vol-target funds mechanically re-leveraging rather than discretionary investors stepping in with fresh conviction. The advance was therefore carried more by existing positions adjusting than by strong new demand.
The geopolitical foundation is equally fragile. The de-escalation rests on talks the Iranian side publicly denies exist, between positions that were mutually exclusive only weeks earlier. Both sides have a documented history of strategic deception, and previous agreements this year did not endure. At the same time the U.S. Strategic Petroleum Reserve sits at a 43-year low, roughly two months above its operational floor, so any renewed supply disruption would hit a system whose main shock absorber is already depleted.
The FED
Markets need clear leadership right now. The FOMC is not providing it. Instead it is following a market that is itself confused. That is not a solid base for policy. Conditions are unusually messy and the data send mixed signals, so it is no surprise that markets are uncertain. But the deeper problem is not the data. It is the Fed.
The right way works like this: the FOMC forms its own view, states it clearly, watches how markets react, and changes course only if the facts change. That is real leadership with clear accountability.
What Chair Warsh has described is the reverse. He has pushed the FOMC to take its cues from the market instead of leading it. He has even admitted that reading markets is difficult and often wrong. That admission makes the current approach harder to justify. Under Warsh, the FOMC is supposed to listen to the market without telling the market what the Fed itself thinks. This is a major change in how the central bank operates.
The base case remains that this peace is temporary. Iran has incentives to buy time; the U.S. political calendar does not. Because the timing is uncertain, the cleaner approach in our opinion is to own defined-risk protection that spans both the CPI report and the September window, financed by the recent advance, rather than to chase the rally.
Our updated trade log is below, as well as new SPX levels and a trade ideas into next week. Let’s revisit our hedges as well.
Let’s begin!
