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For educational purposes only. Results will vary. DM Intelligence LLC is not liable for losses.
Good morning partner,
Few things to cover this morning:
Last Week’s Session
Most of last week was driven by a rotation out of tech and AI-related stocks, which is a pretty big indication in it of itself.
Friday was even more interesting…
Some tech rallied, some tech declined. What’s confusing is that the real economy cyclicals and defensives (you can see Walmart and Caterpillar) finished in the red while tech struggled to find a path.
Why would Apple and Microsoft finish the week in a big up move, while NVIDIA and Micron went the other way in a really nasty move?
I believe this is now deeper than just sector preference, it’s becoming more of a factor preference.
Apple and Microsoft are value stocks, while NVIDIA and Micron are growth stocks.
Keep it that simple, and track the IVE to IVW spread to continue to gauge this new preference moving forward.
Let’s take a look at the week’s leaders and laggers:
Healthcare, Real Estate, Utilities.
Pretty defensive areas of the market, it seems there is now enough confusion around GDP, inflation, and the AI contagion that no other areas are getting bid.
What’s clear though, from this rotation, is that there isn’t a capitulation flight out of equities just yet, even with the DXY dollar index going past $101.
Unless you see all sectors declining, I wouldn’t expect a broader equity selloff past a 10-15% move lower in the S&P. For now, rotation mode.
Without getting into specifics, this rotation isn’t indicative of a pending crash, but rather a slow deflation of the bubble as money simply rotates rather than leaves the market altogether.
There’s a specific event in the IRS code that will start to cut reported EPS in half, so maybe the market is looking to price this in ahead of the surprise, we covered the entire theme for you here ⬇
AI Labor Market
Twitter is flooded with a new statistic that money managers and other finance professionals (52% of them) now use AI to help them in the markets.
But,
The use stops at the research step in the process, no execution, decisions, nor modeling and analysis use has been proven.
I myself use AI for research a lot of the time, but like this statistic, my use for it stops there.
Which is why job postings for banking roles are beginning to spike again, and I suspect we’ll see some sort of continuation coming out of this week’s NFP.
News
Iran and the US agree to halt strikes ahead of their talks set up for this Tuesday. The issue is that every week we seem to get an agreement, then it breaks, then a new one comes out. It’s almost as if the peace card wants to be kept in case a new IPO or AI risk discovery brings the market to a point where it needs to be used.
Samsung and SK Hynix unveil a new $880 billion spending plan to continue building the AI infrastructure needed in South Korea’s memory market. I have something to say about South Korea today, so stay tuned around 10am EST.
Baidu Shares jumped 7% as one of the company’s holdings, chipmaker Kunlunxin, is set to IPO in Hong Kong for at least $50 billion.
Consumer Sentiment rose for the first time in a few months, which is good news for the cyclical and real economy trade we’re watching from the bottom K. The bad news is that sentiment still hovers near an all-time record low.
Movers & ES Levels
Workday & Other Software 📈 Roared back on Friday as Wall Street begins to figure out the AI narrative isn’t holding up as well, and that the software selloff is merely the short hedge to be covered eventually. Psst, in case you missed it, here’s my deep dive coverage on Adobe stock and why it can get to $600.
Crocs 📈 Shot up by 7.5% after Piper Sandler upgraded the stock and called its valuation “attractive.” This is yet another confirmation of the market’s attention rotating into quality, value, and real economy names.
ON Semiconductor 📉 Fell by over 22% after announcing its biggest acquisition ever, investors begin to question whether there is enough money to go around in this circular financing scheme and whether these investments will ever turn a profit.
Micron & Other Chips 📉 Declines by over 10% in some cases as investors begin to take profits and de-risk their bets. I believe this is part of a bigger contagion risk coming from South Korea, an issue I’ll cover later this morning.
Now let’s get into some ES levels for today.
Even after a new round of peace talks, the S&P has failed to reach the $7,500 cutoff point overnight. This cutoff is the current line in the sand between a renewed bull market or a continued bear market, that’s the “P” shaped distribution I was talking about last week.
At the same time $7,350 remains the basement to be pierced if we are to see that “P” reversal come to fruition.
Bulls want to avoid that at all costs, and close a few days above $7,475 and fend off the sellers that will come at $7,500 if we revisit again.
Bears want to come back down to $7,400 and absorb all the buyers that will show up there, I say absorb because this is where the big players show their hand and interest to sell. An absorption, unlike the consolidating fend off expected at $7,500, would visually show up as a sharp ram through $7,400 and consolidation roughly around $7,350.
I will relay you to this publication covering the Commitment of Traders report, and why today’s positioning may signal a continued downtrend for the index in the foreseeable future.
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.
I expect that the rotation started last week could help most of the names we have here above, giving me confidence to keep adding to the DCA program on renewed momentum.
For paid members, I’ll cover correlation and volatility measures, outlook on prices to add or cut, option hedging strategies, and even discuss some long/short equity pair trades to make some short-term gains and cushion these small drawdowns.
All of these features will be limited for free readers, to get the full content, I will see you inside Offside Premium.
Markets are getting choppy, make sure you have me on your corner.
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)
Pagaya Technologies (PGY)
Cognizant (CTSH)
Nintendo (NTDOY)
Tractor Supply Co. (TSCO)
Intuitive Surgical (ISRG)
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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