Our Lean

As of the close, 93% of the companies in the S&P have reported—mostly positive results—showing an 11% jump in earnings per share in Q2. That’s the good part. The bad part is the uncertainty surrounding interest rate reductions.

The Nasdaq roared to new highs after the CPI number, and everything we read or heard was about half-point rate cuts, with more to come by the end of the year. But over the last few days, the ES and NQ have been pricing in an apprehensive Fed and its next moves. Like the old saying goes… the S&P hates uncertainty.

When I saw yesterday’s lows, the only thing I could think of was that the ES and NQ had already sold off and priced in some of the potential bad news from Powell. I also think Powell—despite his independence—is under pressure from the Trump administration to lower rates, and the public is starting to agree.

Our lean: No one can say for sure what the ES and NQ will do next. But as bad as the ES acted earlier this week, it looked like it was trying to shake off some of the news. My guess is that today is a two-way trade that sees lower volume and some back-and-fill action.

I know everyone thinks lower, and there’s no doubt that if Powell backtracks on the upcoming rate cuts, the markets will sell off, but I think bad news will eventually get bought again.

Key levels:

Dan @ GTC Traders

It’s a Bubble: Part Seven? Private Markets … Private Equity

In the previous installments of this series, we’ve unpacked our view that we’re in the late stages of a longer-term stock market rally … and the beginning stages of a stock market bubble. We’ve covered quantitative factors like extreme valuations, upward standard deviations in price, and exploding upside deviations in returns. We’ve also touched on qualitative signs of euphoria … that “this time it’s different” mindset echoing 1999 and 2007. And we’ve discussed how this environment mandates a conservative “nit” game in our portfolio. Smaller positions, patience over chasing gains.

But bubbles are funny things. They don’t stay confined to one corner of the market. They spread. Before anyone sees them. Seeping into other facets of the economy like private equity, private credit, and alternatives. What starts as over-enthusiasm in public equities often inflates valuations in illiquid spaces … where opacity hides risks until it’s too late. Let’s examine how this bubble is manifesting in private markets. Drawing from recent data and timeless principles.

The Private Equity Over-Allocation Trap

Private equity has been the darling of institutional investors for years. Pensions allocate around 15%. College endowments 30%. Elite ones like Yale pushing 40-45%. But step back. The S&P 500’s 500 giants boast $50 trillion in market cap. Massive, profitable, scaled businesses. The next 2,000 public firms (Russell 2000) total just $2-3 trillion. Private Equity? About 12,000 companies … average size $300 million … aggregate value similar to the Russell 2000.

Yet these are small, low-margin, highly levered outfits? Think local dry cleaners versus Microsoft. Intuitively, they should be riskier. More volatile, prone to bankruptcy in recessions (25% rates aren’t unheard of). But institutions pile in. Drawn by promises of equity-like returns with very low bond-like volatility. Surveys show 90%+ expect private equity to beat public markets by only 200 basis points net of fees.

Reality check: As of mid-2025, distributions have collapsed to 10% of NAV (the lowest since 2008) despite all-time stock highs. Fundraising peaked three years ago. Down 40% in capital raised. Exits? Slow Mergers and Acquisitions, scant IPOs for vertical Software as Service (SaaS) firms … even Yale is selling up to $2.5 billion in PE and VC stakes from its $46 billion endowment. Why? Liquidity trap. Money flows in. But trickles out slower than expected.

Volatility Laundering and Hidden Risks

Private equity values seem steady, with just 10% yearly swings … like safe corporate bonds. But that’s misleading. They are valued infrequently, hiding true volatility. Look at private equity funds listed on London’s stock exchange: their values seem stable, but their market prices jump 24% a year … trading at 70% of stated value in 2025 (down from 95% in 2021). Their real risk? About 1.6 times higher than small public companies … debt makes them swing more.

The Yale model was clever after the 1970s economic slump … diversifying into private markets when they were new. Early on, they bought family businesses at 40% discounts … big wins over time. But too much money has flooded in, erasing those deals. Now? Investors are overloaded with small, debt-heavy firms … 50-60% debt on $2+ trillion of equity, plus equal private loans.

Bubbles drive this. Stock market excitement spills into private investments … big players chase “alternatives” as stocks soar. But with payouts drying up … and risks like tariffs growing?  Trouble looms. No crash yet … more a slow leak, unless a recession sparks failures.

A Multi-Variate View … and Alternatives

Combining our series’ variables:

• Equities at extreme valuations and deviations.

• Qualitative euphoria now infecting private allocations.

• Depressed PE distributions signaling liquidity woes.

• Volatility illusions hiding small-cap-like risks.

Our mandate? Stay conservative. We are continuing with our mandate, which is continuing to print basis points every single month. Bubbles spread … but discipline endures. New traders: Avoid the herd. Seek meta-analysis … what others overlook.

Until next time, stay safe … and trade well.

BTS Levels:

ESU2025

The bull/bear line for the ES is at 6408. This is the key pivot level for today. If price reclaims and sustains above 6408, bullish momentum may build, targeting resistance levels higher. Remaining below this level signals weakness and favors the downside.

Currently, ES is trading around 6399.50, slightly under the bull/bear line, keeping pressure on the downside. If sellers maintain control below 6408, the first downside level to watch is 6372.50, followed by stronger support at 6362.75 and 6339.25.

On the upside, if ES can climb back above 6408 and hold, the first test is 6413.25, with further resistance at 6443.50. A sustained move higher opens the door to 6477, our upper range target.

Overall, the near-term bias remains bearish while trading under 6408. Bulls need to regain and hold above this level to shift momentum. Until then, the path of least resistance is lower, with eyes on 6372.50 and below. Reminder, we are still in a long-term bullish trend.

NQU2025

The bull/bear line for the NQ is at 23,298.50. This is the key pivot that will dictate sentiment today. Holding above this level could open the door for buyers to attempt a rebound, while staying below keeps the pressure on the downside.

Currently, NQ is trading at 23,298.75, essentially right at the bull/bear line. If buyers can sustain above this level, the first resistance test comes at 23,324, followed by 23,461 and then the upper range target of 23,511.75. Beyond that, stronger resistance sits at 23,712.25.

On the downside, failure to hold 23,298.50 puts the lower range target of 23,085.25 in focus. Below that, further support levels are at 23,035 and then 22,884.75. A decisive break of these levels could extend the decline toward 22,688.25.

Overall, the market is testing a key decision zone at 23,298.50. Bulls need to reclaim and build above it to neutralize selling pressure, while bears will look for sustained trade below to press toward lower support levels.

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DTG Room Preview – Thursday, August 21, 2025