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Good morning partner,
Few things to cover this morning:
Last Week’s Session
The first half of the week started looking like a risk-off rotation, with capital leaving most of the tech and AI-related names of the market first.
Then, like clockwork, Trump touted a new deal with Iran with language that could have been construed as definitive.
Not surprisingly, the markets took this at face value (for the 40th time), and priced in a fully reopened Strait and no more risks of escalation.
However, the weekly close brought some interesting evidence to the tape.
Let’s take a look at the week’s leaders and laggers:
Industrials, Technology, Financials.
Even though technology staged a comeback on Thursday, it wasn’t enough for it to regain the weekly leadership role.
Instead, it was industrials who led and financials who lagged closely. These two are, by nature, more attached to the real economy cyclicality.
More interestingly, Energy was the biggest laggard tied to the drop in oil prices after Trump’s announcement. I say interesting because it looks like you can’t have AI succeed without energy and vice versa under the current narrative.
That relationship is now beginning to break.
If that thematic continues, I believe we’ll begin to see more of the bullwhip effect already covered around the AI trade and its potential tail risks surrounding fraud and aggressive accounting to inflate earnings.
We covered this in depth yesterday inside Offside Premium by the way.
The Iran Front
No deal has been reached, no matter what was announced last week.
In fact, Iran condemned Trump’s threats over the weekend citing language that closely resembled an accusation of a violation of the ceasefire.
From Iran’s side, they have decided to leave negotiations. From the US side, the Iranians never left Switzerland and are continuing to negotiate.
Which side do we believe? Markets.
Specifically risk and safe haven assets, Bitcoin and the Dollar in this case:
DXY is above $100 still and flirting with a breakout higher
Bitcoin remains well below its 52-week high and in a deep bear market
So, I don’t buy the peace signing just yet, as the shift in these assets point to tail risk protection behavior still prevalent in the market.
News
China Imported 163 tons of gold, its largest volume in over two years. This is happening while China is also easing bank capital requirements, leveraging up their currency and economy for expansion. (More gold on hand can be collateralized when they start to sell US bonds and FX reserves.)
Chevron and Microsoft sign a 20-year contract to power a new natural gas based Texas data center. Looks like the infrastructure buildout is still at play, refer to our bullwhip theory as to where in the AI trade we are right now.
Amazon Prime Day runs this week as a four-day event, to provide further insight into the state of the consumer and how much discretionary spending is taking place in the real economy.
The Fed will post its annual bank stress test on June 24th, I have done some research around the level and trends of risk-weighted assets (RWA) within US banks, showing de-risking across the board, so I wouldn’t expect much of a surprise from this test.
Movers & ES Levels
Not much changed from our last digest, considering markets were closed on Friday:
Getty Images 📈 Soared over 200% after announcing a new OpenAI deal, goes to show markets may be utterly wrong in assuming AI is going to kill all of software.
Enphase Energy 📈 Added 10% to its price after announcing an exclusive commercial solar product in the US, where solar energy is now more dominant than coal.
Accenture 📉 Plunged by 18% as the slowing AI revenue starts to hit those in the bullwhip effect we covered for you, now shown in cybersecurity.
Kroger 📉 Fell by 8.5% even after a somewhat strong earnings result as the company quoted inflationary pressures as a headwind for future business, this is no Target (TGT), but I am liking the price here for a potential watchlist addition.
Now let’s get into some ES levels for today.
There’s a good 50-point range keeping markets bound between $7,575 and $7,525. I suspect we will remain there until a volatility event comes around to expand it.
This week we’ve got PCE and GDP data, so maybe those will do.
Bulls want to erase the resistance line at $7,575 and take us to $7,600 on a sharp pierce and strong volume.
Bears want to see the opposite 25-point decline toward $7,500 and make their case there.
Either $7,500 or $7,600 represents the area where buyers will meet sellers and vice versa, it is also a zone where either side will be “trapped” and then flushed.
Here’s a simple volume profile plot for you to visually see these levels and why a volume cutoff can cause these “traps”:
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.
Like last week, when I alerted of my Alibaba and Microsoft buying. Later this week, the auction may be favorable to execute my weekly DCA into one of these names as well.
So keep notifications on, and consider joining us on the other side as I will post my deep dive research on these watchlist names:
Lululemon (LULU)
Uber (UBER)
Pagaya Technologies (PGY)
Cognizant (CTSH)
Nintendo (NTDOY)
Tractor Supply Co. (TSCO)
Here’s my current pitch deck on Lululemon for starters, get familiar with my thesis before I drop the entire deep dive in Offside Premium. ⬇
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