Morning Digest 06/16

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Good morning partner,

Few things to cover this morning:

Yesterday’s Session

Breadth is improving for the rest of the market, which is not a signal of a pending selloff or de-risking, but rather a quiet rotation happening.

Let’s take a look at the weekly leaders:

Materials, Industrials, Financials, Utilities.

All leading the tech trade, which shows interest to gain exposure back into the real economy and away from the AI economy.

With the Equal Weight S&P (RSP) reaching all-time highs along with the Market-Cap Weighted S&P, this is more than just a fluke but more of a theme.

Which leads me to…

The Iran Front

Trump has touted that the Strait of Hormuz will reopen by Friday, though G7 allies suggest it won’t be that quick, nor that easy to get done.

I believe that, no matter when or if the Strait opens, there are plenty of rebound opportunities away from oil and energy (which is where most traders are focused now.)

We are now closing in on 120 days of supply chain disruptions from the war, and the effects (I believe) have yet to be seen. This is why I’m leaning on overly pessimistic expectations and valuations to profit from a potential opening.

You don’t need to look that far, as there are plenty of attractive trades showing up in the agricultural and transportation sectors.

I will be pitching some swing longs in those areas soon, so keep an eye out for that bottleneck easing rally.

In fact, one of the areas to watch for the recovery post-war is emerging markets, where stocks are already flirting with new highs from lower oil prices.

There are three markets I’m keeping an eye on for this resurgence:

The first two I will likely cover in this free newsletter, the last one I will reserve for Offside Premium members.

News

Taiwan is reportedly allowing life insurance companies to invest into AI-related projects.
In my view, this wouldn’t need to happen if there was enough organic demand, so perhaps the trade is running out of buyers.

Whirlpool (WHR) hits new 52-week lows after weak earnings, I think this stock may become a potential buy soon: Added to the watchlist ✅

We have Kevin Warsh’s first FOMC meeting tomorrow along with retail sales data.
Later today, building permits will shine a light into the consumer balance sheet and bank/county appetite to approve construction loans and mortgages.

Movers & ES Levels

The United States 10Y-2Y Yield curve is making lower lows and lower highs right now.

We can take this as a bearish flattener signal as bond traders weigh in on the economy and its current state, making a direct call of “policy error” which Warsh will eventually have to address.

High yield credit spreads are back to cyclical lows, signaling underlying credit risk is tamed down to allow for a further bull market (for now.)

The risk is that these spreads, and the VIX, are too low. A tail risk event could be around the corner and I believe it could come from either:

We’ll see, now let’s get into some ES levels for today.

Bulls want to see sustained bidding above $7,600 today for this current distribution to hold, bears want to take price to $7,575 and pierce it with sharp action and good volume to reject the current highs.

We have just rejected a head and shoulders pattern at $7,300 which was the remaining hope for a pullback into the $6,800 area. Apart from this, we’ve completed an inverse head and shoulders at $7,450 which got us to the current highs.

On the volume profile going from $7,300 to the highs, there’s a clear “b” shape for the auction, cutting off right around $7,500.

Therefore, $7,500 is my line in the sand for a weekly close above/below to determine a bull/bear market trend.

Portfolio

I have initiated the Offside Portfolio for paid members, but you will receive daily updates on my positions after I decide to buy or sell.

Since this has just been incepted, there’s only Domino’s Pizza, but I will likely add from names in the following watchlist:

Here’s my current pitch deck on Uber for starters, get familiar with my thesis before I drop the entire deep dive in Offside Premium.