Good morning, traders. Let’s get started.
Last week, the market went through a violent bull-to-bear reversal. Semiconductors had been extending their rally, but the news that Anthropic’s ARR fell short of expectations became the catalyst that abruptly reversed risk appetite across the AI trade. We had accumulated solid unrealized gains in positions including SOXX and DRAM, but the reversal came too quickly, forcing us to exit roughly flat or with small losses. There was nothing wrong with the direction or the entries, but we did not protect our profits well enough. That was the most frustrating part of last week.
Fortunately, our other core position—gold—fully delivered. We made two excellent adds at 4,370 and 4,500 before the rally accelerated, and gold ultimately contributed the vast majority of last week’s profits. Elsewhere, our DIA puts generated a small gain, IWM puts posted a minor loss, and the QQQ call spread was closed for a small loss.
Overall, the core gold position allowed us to finish the week with a solid profit. But watching large unrealized gains in semiconductors evaporate into flat or slightly losing trades was another reminder that, in the current market environment, protecting profits is every bit as important as getting the direction right.
In our Discord, I post daily updates on my latest market views, while many experienced traders in the community also continue to share their own insights. If you have not yet joined the subscriber chat, click the link below.
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With that, let’s move on.
All three major U.S. equity indices finished lower last week, ending a three-week winning streak. The S&P 500 fell 1.43% to 7,674, the Nasdaq dropped 2.05% to 26,180, and the Dow declined 0.85% to 53,277.
At the sector level, Health Care gained 4.33%, Energy rose 2.79%, and Materials advanced 1.90%, while Technology fell 3.53%, Industrials lost 3.36%, and Utilities declined 2.3%. Capital is rotating out of the old Technology/AI leadership and into hard assets and defensive sectors.
What happened last week was, at its core, a textbook example of how policy intervention can distort asset pricing. Let’s break it down.
On August 20, the U.S. Treasury announced that it would double the size of its long-end Treasury buybacks from $2 billion to $4 billion per operation, effective September 9 and targeting the 10Y–30Y sector.
On the surface, this looked like a relatively minor operation designed to improve market liquidity. But the market reaction was violent. On the day of the announcement, the 10Y yield fell nearly 10 basis points, while the 30Y dropped from 5.28% to below 5.20%, triggering a sharp Treasury rally.
Then, on Thursday and Friday, yields gave back the entire move. The 10Y closed the week at 4.736%, while the 30Y finished at 5.276%, close to a 19-year high.
My core view is that Bessent’s buyback operation has effectively established a policy ceiling for the 10Y and 30Y.
This transmission mechanism deserves a closer look because it directly determines the pricing of gold, Treasuries, and the U.S. dollar.
Layer One: The U.S. current account deficit requires foreign capital inflows.
This is one of the foundational mechanics of the dollar system. The United States consistently runs a current account deficit, meaning it consumes more than it produces. That gap must be financed by foreign capital.
When foreign investors buy U.S. Treasuries, equities, and corporate bonds, they are effectively financing that deficit. If foreign demand declines, the price of dollar-denominated assets—expressed through yields—must adjust to attract buyers.
Layer Two: Under normal conditions, yields rise to attract foreign demand.
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