The “2 Sigma” setup that turns calm into cash
Hello, JD here with your Rational Trader market update for Wednesday, August 7.
There are no trades from me today — not because I’m taking the day off, but because there just weren’t any setups worth taking.
Let me explain why.
When the Cash Machine Closes Shop
Most of the time, I’m able to find trades that capitalize on mean reversion — that is, when stocks get stretched too far from their average price and inevitably snap back. These are my “cash machine” setups. I love them.
But today, most of the stocks I screen are sitting right near their mean. And when they’re near their mean, there’s no edge… No inflated premiums… No mispricing to exploit.
So, rather than force a bad trade, I’m staying patient.
A New Nightmare at the Fed?
Now let me tell you what is worth paying attention to.
There’s growing chatter that Steven Miran — an economist who is essential the architect of the Mar-a-Lago Accord — could be appointed to the Federal Reserve Board.
This is the guy behind the so-called Miran Doctrine, which calls for:
- Deliberate weakening of the U.S. dollar
- Raising tariffs on foreign goods
- Penalizing allies that hold U.S. debt
In my opinion, this would be a disaster. Not just for U.S. credibility abroad, but for anyone with capital tied to equity markets.
Even though earnings have been good — thanks largely to corporate pricing power — this kind of shift could ignite long-term deflation and global instability.
How I’m Positioned Right Now
For now, I’m still holding a short position on small caps in my Money Fortress account — using the RWM ETF.
It’s slightly underwater this month (down about 1%), but I still believe a larger correction is coming which could turn the trade profitable.
I’ll be watching closely in the coming days. If mean reversion setups appear, I’ll be back in the game. But today wasn’t that day.
Talk soon,
JD
The Rational Trader
