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* FIEND'S SUPERBEAR MARKET REPORT *

* August 5, 2026 *

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* e-mail: fiendbear@fiendbear.com *

* web address: http://www.fiendbear.com *

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Fiend Commentary
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Everyone to One Side of the Boat

Tuesday’s rally was not merely strong. It had the character of a market stampede.

The Dow jumped more than 900 points and closed above 54,000 for the first time. The S&P 500 gained 1.8% to another record, while the Nasdaq surged 2.6%. Semiconductor shares rose 6.6%, Palantir gained nearly 30%, Caterpillar jumped 5.6%, oil plunged more than 5%, Treasury yields eased, and metals rebounded.

Wall Street received two stories it desperately wanted to hear at the same time.

The AI bubble may be ready for another run.

And the Middle East war may finally be approaching a settlement.

That combination was enough to send nearly everyone rushing toward the same side of the boat.

A Deal Before There Is a Deal

The immediate catalyst was another announcement that an agreement to reopen the Strait of Hormuz could arrive “today or tomorrow.”

We have heard variations of that statement for months.

This version may be closer than some of the others, but the reported terms deserve far more scrutiny than the stock market gave them. Iran is seeking control over ships entering the Persian Gulf and wants to be notified of outbound traffic, with the ability to intervene when it believes necessary. Oman would provide clearance for ships leaving through its side of the waterway.

The United States insists the arrangement will provide freedom of movement without Iranian tolls or unilateral control. Iran appears to describe something very different: formal authority over inbound shipping, oversight of outbound traffic and some version of security or service fees.

Those are not minor wording differences. They are the substance of the agreement.

Before the war, the Strait was internationally recognized as a commercial passage with established inbound and outbound lanes. If months of bombing, blockade, depleted military inventories, emergency oil releases and global economic disruption end with Iran receiving an institutionalized role in deciding who enters the Gulf, it would be difficult to call that an unambiguous American victory.

One could argue that the strategic position is actually worse than it was before February.

The original justification for the war centered on Iran’s nuclear program. Now the immediate negotiation is about how much control Iran will receive over one of the world’s most important shipping corridors. The nuclear issue is being pushed into a later phase, where it may once again become the subject of delays, extensions and partial concessions.

Wall Street does not care about that distinction today. It cares that oil might flow.

The Strait Is Not Open Yet

The market is already pricing a return to normal even though shipping remains nowhere close to normal.

Only eight vessels reportedly transited the Strait on Tuesday—five tankers and three bulk carriers. Before the war, approximately 130 to 140 vessels passed through each day. That means current traffic remains a tiny fraction of the old level despite the repeated announcements of diplomatic progress.

Oil fell anyway. Brent settled at $79.36 and WTI at $75.77, both down more than 5% for the day. The decline was large enough to lower inflation expectations, pull Treasury yields down and reduce the market’s estimate of a September Fed hike.

The oil market is not waiting for tankers to move. It is pricing the press conference.

That may prove correct. A real agreement could rapidly release stranded shipments, lower insurance costs and restore enough traffic to keep crude in the $70s.

But the arrangement appears temporary, the United States and Iran are describing different terms, no final agreement has been announced, and another ship was recently struck in the region.

Tuesday’s oil collapse was not confirmation of peace.

It was another wager that peace will arrive before the next attack.

When Stocks and the VIX Rise Together

Perhaps the most revealing development was that the VIX rose alongside the stock market.

The VIX is often called the “fear index,” but that description is incomplete. It measures the cost of expected S&P 500 volatility using both put and call options. It can rise when investors are buying downside protection—but it can also rise when traders aggressively chase upside calls.

That appears to be what is happening now.

Investors who were underweight technology after July’s chip correction suddenly rushed back into bullish options. Call buying helped push market makers to buy underlying shares as hedges, which added fuel to the rally. The result was the unusual “spot up, volatility up” pattern: stock prices and implied volatility rising together.

This is not ordinary fear.

It is fear of missing out becoming so intense that investors are paying more for upside volatility.

That can be extremely bullish in the short run. Call-option demand can create a self-reinforcing cycle in which rising stocks force additional hedging purchases, which cause stocks to rise further.

But it also indicates that the market is becoming less stable, not more stable.

When everyone is positioned for the same outcome, the danger is not that the popular thesis is immediately wrong. The danger is that fewer buyers remain if it stops working.

Michael Burry Is Early—Until He Isn’t

Michael Burry is once again warning that the market is approaching a violent break.

He has been bearish for a long time, particularly on AI, memory chips and semiconductor stocks. He has also been early before. Anyone who followed every Burry warning over the past several years would have spent considerable time watching markets rise without them.

But being early does not make the underlying analysis wrong.

Burry’s latest concern is not simply that stocks are expensive. He argues that volatility-targeting funds and automated strategies could convert an ordinary decline into a disorderly liquidation. Funds managing roughly $500 billion may be forced to reduce exposure if market volatility rises sufficiently. According to his analysis, even a decline of around 2.5% could start enough systematic selling to produce what he called a potential “bloody mess.”

That mechanism matters more after a rally like Tuesday’s.

The same automated strategies that add exposure when volatility falls may sell when volatility rises. The same option structures that accelerate gains can amplify losses. The same investors chasing calls because they cannot tolerate missing another AI rally may rush to the exits when the momentum reverses.

Burry also appears to have been right about the first stage of the semiconductor correction. The semiconductor ETF he targeted fell roughly 21% during July, its worst month since 2008, before Tuesday’s huge rebound. He continues to argue that chip valuations and AI infrastructure spending have moved far beyond sustainable levels.

The Curmudgeon has reached a similar conclusion from a different direction. His recent charts highlighted the extraordinary semiconductor mania and valuation measures that have exceeded the peaks associated with both 1929 and the dot-com bubble.

His latest article also warns that AI demand is increasingly supported by circular financing—chipmakers, cloud companies and AI developers financing one another’s growth in arrangements that can make financed purchases look like independent end demand.

None of that tells us the exact day the bubble ends.

It does tell us what could make the decline much larger once it begins.

The AI Rally Returned With a Vengeance

Tuesday’s rally was not driven by peace hopes alone.

Palantir surged 29.5% after raising its revenue outlook. Caterpillar gained 5.6% on demand connected partly to data-center and power infrastructure. Semiconductor shares jumped 6.6%, and technology led all major sectors.

The market interpreted those results as evidence that AI spending is finally producing measurable returns.

That may be true for some companies. Palantir is growing rapidly. Caterpillar is benefiting from construction and power demand. Microsoft recently demonstrated that at least one hyperscaler can produce strong cloud growth while maintaining substantial cash generation.

But the market is again making the leap from some companies are earning money from AI to nearly every AI-related valuation is justified.

Those are not the same proposition.

The technology is real. The revenues are real. The spending is real.

The price paid for the stocks can still be absurd.

Tuesday’s rebound restored hundreds of billions of dollars in market value within hours. That is not merely investors calmly recalculating future cash flows. It is momentum returning to an area where enormous amounts of capital were already crowded before July’s correction.

The bubble may have resumed.

Or Tuesday may have been the biggest short-covering rally inside a bubble that has already begun to crack.

We will not know immediately.

The Fed Trade Reversed Again

The collapse in oil also knocked down expectations for a September rate hike.

The implied probability reportedly fell from approximately 67% to 57%, while the 10-year Treasury yield dropped toward 4.60%. Gold rose roughly 1.6% as lower yields and a weaker dollar relieved some of the pressure that had punished metals during June and July.

Once again, the CME probabilities changed dramatically because of one geopolitical headline.

When oil rises, the market prices Fed hikes.

When oil falls, it reduces those odds.

A weak employment report Friday could reduce them further. A hot CPI or another tanker attack could reverse the move again.

The market still wants to believe that every path eventually leads toward easier policy. If inflation cools, the Fed can remain patient. If employment weakens, cuts may eventually return. If stocks break, financial stability becomes the excuse.

That dovish bias is one more reason investors are comfortable crowding onto the bullish side.

A Rally Can Be Both Real and Dangerous

Nothing says stocks must fall merely because Tuesday’s gains were enormous.

Strong earnings, lower oil, easing bond yields and diminished Fed-hike expectations can carry the market considerably higher. Momentum can persist far longer than skeptics expect. Burry may remain early. The Dow could reach 55,000 before it ever sees 50,000 again.

But the character of the rally matters.

The market is simultaneously pricing:

• a successful peace agreement that has not been signed,
• free passage through a Strait where traffic remains drastically impaired,
• another AI boom despite unresolved questions about financing and returns,
• lower inflation despite a war that could restart at any moment,
• and a Fed that will somehow avoid both a rate hike and an economic downturn.

That is not a cautious market climbing a wall of worry.

It is a market assuming that every major uncertainty will resolve in its favor.

The rise in the VIX alongside stock prices may be the clearest warning. Investors are no longer merely optimistic. They are paying up for the right to participate in further upside because they fear being left behind.

That can produce extraordinary gains.

It can also leave everyone on the same side of the boat.

Tuesday’s record closes were real. The oil decline was real. The earnings were real.

So is the concentration of belief.

Michael Burry may be early again.

But every additional investor who decides that risk has disappeared makes his eventual scenario a little more plausible.

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