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Good morning partner,
Few things to cover this morning:
Yesterday’s Session
For the first time this week, the tech rotation has turned into a broader risk-off move considering most sectors in the S&P declined.
You can track this daily with the SPY vs RSP relationship, here are the two most common scenarios:
SPY goes up while RSP lags or goes down: This adds to the concentration and risk-on trade for whatever is hot (AI-related stocks currently.)
SPY goes down while RSP goes up: This is the sort of rotation we’ve experience this week as defensive areas settle the day green while the index declines overall.
Yesterday wasn’t concentration nor rotation, it was a broader de-risking as the debuting Fed Chair Warsh brought the rate cut excitement down for markets.
Let’s take a look at the day’s leaders and laggers:
Communication, Cyclicals, Real Estate.
As you can see, anything from riskier areas like Comms to Real Estate and Defensives all went down yesterday.
What went up? The Dollar, which is back above $100 to signal liquidity stress building up despite WTI crude oil falling below $75.
That’s a classic safe haven run trade, and not something we should shrug off in terms of portfolio management.
This means the AI trade may start unwinding as revenue targets are missed, ROI schedules on capex get pushed way back, and the productivity question blurs.
We covered this in depth yesterday inside Offside Premium by the way.
The Iran Front
The MOU is mostly behind us and priced in, though nothing has been officialized yet neither by Trump or Iran.
In fact, Trump said he doesn’t want to bomb them again, but he might if the deal is not to his liking.
So I guess we’re back at square one in terms of a renewed TACO cycle, we’ll see.
News
Intel (INTC) shares soar after Trump touts government gains after buying stakes in the company, cites a new Apple partnership on top of the company’s involvement with NVIDIA as well.
Kevin Warsh debuted in his first FOMC with little substance and comments on removing forward guidance from their practice. Policymakers raised their inflation forecasts and removed their easing bias (ouch).
The Fed also lowered its long-term growth outlook as nine officials now project at least one rate hike this year.
Retail Sales posted a 0.9% gain above the 0.6% expectation, though this was mostly led by gasoline stations on a month where gas prices were at quarterly highs. Beneath the surface? Not so strong.
China eases capital restrictions for banks to make their bonds more attractive, banks and other sovereign funds buy them in bulk to boost the Yuan. This should be good for our China portfolio, which will be covered for members.
Movers & ES Levels
La-Z Boy 📈 Shares jump over 15% after reporting a strong quarter, retail sales growth, and returning demand for the furniture industry. This goes to show there are plenty of pessimistic expectations (which are easy to beat) in the bottom K of the economy.
Figma 📈 Rose nearly 4% after Citigroup analysts began covering the stock with a buy rating. This is one of the names most affected by the “AI will kill software narrative” which may now begin to shift back to reality and provide upside opportunities.
SpaceX 📉 Falls for the first time since its IPO, posting a 5% decline as the risk-off sentiment begins to take on water, still, pre-IPO shares are still locked so the big selling wave is not here yet.
Lionsgate Studios 📈 Declined by 6.2% after Netflix denied rumors of buying the studio, I like Netflix to become what it once was, but the price isn’t quite attractive just yet.
Now let’s get into some ES levels for today.
Yesterday was filled with $7,575 and $7,500 tests multiple times. We are now at a short-term line in the sand drawn at $7,500 that divides the upper/lower distribution of this “b” shaped profile.
Bulls have one job today, and it’s being done in the pre-market, which is to close above $7,500 and reclaim $7,550. If they manage to do this, I can see the index headed back to and above $7,600.
Bears want to fight it out at $7,550 (there as of 6:50am EST) and bring us lower into $7,500 before a sharp pierce below it on good volume, which would validate the “b” reversal on the profile.
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 and Adobe, but I will likely add from names in the following watchlist:
Lululemon (LULU)
Uber (UBER)
Pagaya Technologies (PGY)
Cognizant (CTSH)
Nintendo (NTDOY)
Tractor Supply Co. (TSCO)
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. ⬇
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