I Found My Next Trade Inside the PMI

53% of active investors and managers now expect real economy stocks to outperform AI stocks.

For the first time since the AI trade’s inception, the majority of participants now believes all alpha has been squeezed out of these names.

While I agree with them, I would not risk my capital on timing this rotation whatsoever, especially if you’ve been reading our morning digests.

You may have noticed the market is in a sort of back-and-forth fight between bidding the concentrated AI trade, and between rotating back to the real economy names.

Because of this, I believe the above opinion is correct directionally, we are definitely going to see real economy names outperform AI and technology.

However, I wouldn’t be so sure about the timing just yet.

Lucky for you,

That doesn’t really matter.

Because we are timing our investments based on factors, order flow, and institutional participation reads.

All of which has led us to trades like:

And many others currently being worked in the pipeline.

Now let’s get into today’s email:

How I found my next trade inside the Services PMI.

Last week, I gave you my breakdown of the Manufacturing PMI.

More importantly, I gave you three industries where I’d be looking to make a medium-term swing trade.

I’m 90% done with modeling that trade structure for you, so Premium Members look out this week as there will be a few options and equity trade ideas sent your way.

Today is Services PMI day, and the story looks a bit similar:

This PMI sends a different signal compared to manufacturing, considering it represents ~80% of the economy while also being made up of most of the defensive industries in the economy.

Still,

There are strong signals to be extracted from the report.

Like this commentary from the construction industry, pointing to longer lead times in data center related materials.

That tells you something about my Manufacturing signal, leading you to a bullish bias on some primary metals stocks.

Because both PMIs now confirm my view on that area, I am ready to finish up a long/short equity trade idea, package it in a real institutional manner, and send it out this week.

So stay tuned for this metals play.

A second signal for the apparel idea spotted inside the Manufacturing PMI.

What this comment does is help me understand my model assumptions, industry risks, and figure out how to think of P/E premiums and discounts.

Overall it sounds like some companies are doing well despite inflation and an all-time low consumer confidence reading.

Like I said last week, select premium names are continuing to do well, those in the middle are dying, and some at the bottom could be turnaround plays.

Specific to the Services PMI, here are my top industry breakout picks:

Here’s what I think about these:

Transportation & Warehousing: Now that the Iran War may be over, and fuel prices won’t be an issue for the foreseeable future, you can very quickly see how these lower input costs are driving renewed activity and demand for:

With this information, I am specifying my filters within the industry, if there’s anything worth taking I’ll relay it back to you.

Finance & Insurance: What’s good for gamblers is good for brokerages and banks. I gave you Robinhood (HOOD) stock in my Twitter last quarter in the low $70s range, now that the frenzy has been amplified by the removal of the PDT rule, I suspect broker stocks to report massive earnings growth.

Putting it all together now.

From the Manufacturing deep dive, we know to focus on:

Today, we doubled down on some and discovered others:

Keep these in your notes, and make sure you join Offside Premium.

A handful of trades are about to be sent your way this week.

Some traders are now preparing for the potential turnaround in the transportation industry:

Strong open interest suggests traders are now betting on a KnightSwift Transportation (KNX) breakout on earnings.

These traders are expecting to see roughly $85 this July and $105 by December.

While the post war setup looks bullish enough to make this happen…

This is one piece of data alone, and it is NOT an indication that I will select a trade in KNX from here.

But,

It does show that maybe I should start digging further into the space for other such evidence.

The same will be done for the other three industries showing healthy signs of expansion.

The results will be given to Premium Members first.
Click here to be part of what’s next.

And as always, keep an eye on our Morning Digests.

In the meantime, here’s the latest from Jordi Visser. This guy is one of the leading retail voices for the AI trade, and while I don’t agree with everything he says, I think it’s a good source to check up on what retail is looking at.

As bullish as he is on the AI trade, even he is admitting that a momentum fade has become an issue:, plus an ONON sleeve, is also being prepared for this week

Until next time,

OFFSIDE RESEARCH

Against the Tape, Ahead of the Curve.