Has the Q3 market correction bottomed? NO

A follow up to the previous previous article

Before we start, here is the last article.

Q3 Market Correction, Q4 Melt Up, Next Super Cycle Theme

So, has the market bottomed, and is it time to get bullish for the next cycle? Nope. The framework from the previous article still holds strong. If you haven’t read that piece, or the yen carry trade article quoted within it, please do so to get up to speed. I am not pivoting. In order to be bullish in this bubble, the leaders need to be tech and AI-related trades, but these sectors will experience extreme volatility during Japan’s policy changes.

Japan raised rates by 25 basis points in June to bring the rate to 1% as expected, which was supposed to be the last hike of the year. However, the Yen continued to weaken. This led to an unexpected joint currency intervention by US Treasury Secretary Bessent and Japan’s Ministry of Finance on July 31st. Washington is currently pressuring Japan to hike rates rather than selling US Treasuries. Before this intervention, the probability of Japan raising rates in September was about 24%. Now, the odds are around a 78% chance of an increase in September and 96% by the October meeting. That means there is going to be at least one more rate hike of 25 basis points. This is exactly what you need to know before you think about going bullish, or before choosing not to sell the AI trade during this rally to buy back cheaper later!

Another interesting tidbit is that the last time the USA and Japan did a similar joint currency intervention was June 17th, 1998 during the dot com bubble. 1998 was a world cup mid term elections with many similar unknown geopolitical issues. The June 17th intervention in 1998 kept the markets from correction for exactly one month before it gave away on July 20th. Like now 1998 was defined by intense, highly volatile geopolitical and macroeconomic crises that directly triggered the global market sell-off. While the specific flashpoints differ from today's environment, the psychological impact on the markets, a sudden, violent "flight to safety" and an overnight evaporation of liquidity was exactly the same.

I believe the people who think the bottom is in are in for a big surprise. The rally we are seeing now is the result of the derivative market lighting up as big funds and market makers position themselves for the next legs down. As I pointed out in my previous article, I highly recommend opening SPY and QQQ charts to study the daily candles two months before and two months after the previous two times Japan hiked by 25 basis points (January 24, 2025, and December 19, 2025). Both times, the market topped weeks leading up to the hike, and rotations began early before the correction.

This time (June 16, 2026 hike), the market topped two weeks before and rotations began. However, instead of just re-testing the all-time high or barely squeaking above it, SPY seems to be breaking out as if it is ready to go straight up. QQQ is still behind, but it is poised to test its all-time high this week and looks like it could also break above it.

I think this time the bull trap is going to be epic. This rally is a great opportunity for those who didn’t prepare and take profit during the June-July pullback. I am not sure how high this volume-compressed beta rally will go, but if it hasn't already topped I see it topping sometime between Aug 21 and Aug 31. Once this fake rally ends, SPY and QQQ are ultimately headed to test, and possibly even breach, the 200-day simple moving average (SMA) before the real 2027 bull cycle begins. As of now my the projection for bottom still remains same as in the previous article, sometime in q4 and to be more specific sometime in October.

For smooth sailing 2027 bull cycle shopping, I want to see SPY and QQQ tag their peaks from before the March correction. These peaks sit just below the 200-day Simple Moving Average (SMA). Once we hit that area, I will consider picking up some long holds for 2027; until then, we have to trade carefully. After this current rally, even a violent drop to those zones is not necessarily bad, because those prior peaks sit between 690–700 for SPY and 635–640 for QQQ which are not even year’s low. The upward move that ensues after that bottom will be the true bull continuation rally. This current rally will likely end abruptly, and the higher it goes, the more violent the eventual fall will be.

We can expect DRAM and SMH components to drag itself higher this week and into the topping process because these are the sectors that can help QQQ go to ATH. After the topping process, these same sectors will get hit the worst.

While macro indicators like a rising Treasury General Account (TGA) balance and a depleted Reverse Repo (RRP) facility signal that structural net liquidity is actively draining from the banking system, micro-liquidity dynamics are keeping the equity rally alive. Specifically, a stable Secured Overnight Financing Rate (SOFR) proves that overnight funding markets remain highly functional, while the compressed ICE BofA High Yield Index Option-Adjusted Spread (BAMLH0A0HYM) reflects deep liquidity in the private credit and corporate bond markets. This robust credit environment is acting as a temporary cushion, decoupling stock prices from the broader liquidity drain. The moment SOFR spikes or private credit spreads begin to widen back toward reality, even if temporarily, markets should experience sharp correction.

Trading-wise, last 2 weeks was tough. While I timed my entry into the August rally perfectly, I left too much money on the table by taking profits early in anticipation of an imminent top. At the time, I discounted the likelihood of Japan being forced into another rate hike later this year. I then compounded the mistake by using those profits and additional capital to fund downside bets that ultimately failed. That is the frustrating nature of swing trading. However, looking ahead, the core thesis remains intact: the portfolio should recover completely by quarter-end, paving the way toward new all-time highs.

If you are interested in joining my moves, you can join the subscriber chat where there is a thread for each of our portfolios. Portfolio positions and daily market views are shared in these threads.