Energy Was Dead Money. It Just Made 7.7% in a Week.

Hello my friends,

I am traveling on vacation for 2 weeks so this is a short edition.

📊 Market Health

My market health score gave back eleven points and price did not follow. Last Friday’s spike to 84 stood on a single jobs report. This week the market had to hold those levels without fresh fuel, and it did, drifting to 73 while the S&P added a third straight weekly gain.

The McClellan summation, the component I leaned on hardest last Sunday, slipped from 347 to 258, still positive but done climbing for now. The slower measures picked up the slack: 56% of stocks still trade above their 200-day average, and nine of eleven sectors keep a majority of members above their 50-day.

On Friday the S&P slipped while the Russell 2000 closed at a record, its fourth straight up day. For most of this year the index rose while the average stock watched. This week the roles swapped.

🚨 Sector Rotation

The leaderboard flipped in five sessions. Energy finished first in price, up 7.7%, and first in participation too, with four of every five members above their 50-day. Last Sunday it was the worst line on the board.

The chronology matters more than the size of the move. Almost five of those points printed on Monday, before any new attack, when weekend strikes on shipping made the reopening talks look stuck. Thursday’s hit on two ADNOC tankers inside the strait confirmed what Monday had already priced. Four months into the closure, with the IEA warning that global stockpiles are draining fast, Brent traded near $90, and no new war was needed to get it there.

The rest of the board says the real-asset bid is spreading. Materials joined the leaders, and financials kept the second-deepest participation on my screen. Technology slid into the weakening column even with the Nasdaq up on the week. Utilities bounced 1.6% in price and stayed dead last in breadth at 37%. The front end of the rate market handed that group its excuse again this week, and the group refused it again. I said last Sunday a sector that ignores good news knows something. I have no better answer this week.

📉 Volatility

The surface is priced for a quiet August that nobody can guarantee. The VIX closed at 14.25, near the floor of its month. The term structure says more: three-month volatility against one-month trades at 1.30, the top of its two-year range. Protection for the next thirty days costs almost nothing while the autumn carries the full premium.

Two details push back on the comfort. The SKEW rose 3% Friday, which reads to me as buyers rebuilding the crash insurance I flagged last week as the cheapest in a year. And crude volatility stopped falling: the sellers who spent July pricing a stalemate covered this week.

🔥 Trade of the Week:

Papa John’s closed Friday at $24.26, a billion-dollar franchise trading four percent above its 52-week low, down 37% this year.

The damage is real and dated August 6. The company beat on profit that morning and the stock still lost 17% in a session, because everything around the beat was ugly: North America comparable sales fell 8.3%, the full-year outlook was cut, and the board suspended the dividend. The market read all three as a franchise in decline and priced it for one.

Here is what I read. International comps have grown seven quarters in a row, and the turnaround has already worked on those markets. Suspending the dividend hands the company its own cash back when it needs it. And the tape has done nothing for six sessions. Six closes within a dollar and change of the low, with volume shrinking from eight million shares on earnings day to one million Friday.

My Bottom board, built to catch finished declines, flagged the name this week. The pieces it wants are all there: a decline old enough to be structural, a capitulation on volume near twice normal, an RSI in the low twenties, and a five-session slope that has already turned positive while the ten-session slope still points down.

• Sizing: small

• Entry: $24.25 first half, $23.53 second half

• Stop: $23.27

• Target 1: $27.20

• Target 2: $30

• Stretch: $33

Cheers,

Daniel

P.S. The app is the daily version of what you just read, the same boards and screeners I run every morning before I trade. Promotion is on for 1 week.

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