Morning Digest 06/30

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Good morning partner,

Few things to cover this morning:

Yesterday’s Session

Not quite the rotation trade we were getting used to from last week.

In fact, far from it…

Capital came right back into the chip and memory trade, as well as most of the AI-related leaders of the momentum trade that’s taken over markets recently.

What’s become clear, especially if you watched my YouTube video on the hyperscaler vs semis divergence, is that not all hyperscalers are being treated the same.

Last week, we pointed out that defensive and high-quality stocks in the hyperscaler area were getting bid. Today, the story looks a bit different with Microsoft getting sold along with Apple while Amazon and Broadcom end the day higher.

This sort of price action is starting to clear up even if it doesn’t seem like it.

We are now in trench warfare between high-growth speculative companies and high-quality value names.

Who wins this fight is anyone’s guess, but I will do my best to put it together for you once we get relevant economic updates this week (PMI and NFP.)

Let’s take a look at the day’s leaders and laggers:

Communications, Cyclicals, Technology.

If you’ve been reading up on these digests, you know this looks a whole lot different compared to our last several posts.

It is also confirmation that high-growth AI plays are getting bid again to continue the concentration and momentum norm that’s been driving the S&P 500 higher.

What’s interesting this time is to see cyclicals also recover when companies like Apple, Microsoft, and Best Buy are being forced to raise hardware prices due to spiking memory costs and other inputs.

So when I looked into the cyclical best performers, I found a pretty clear trend in the following pockets:

I suspect I will begin to find some confirming data in the PMI and labor trends this week to back this sudden rotation into consumer stocks, all of which will be relayed and turned into trade/investment ideas for you.

But,

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Two Sides to the Coin

Hyperscalers continue to boost their capex expectations, now past $700 billion for the current year.

Promises made are not necessarily promises kept, and one thing is for certain:

This happens every cycle, but this is also the first cycle that has all this capex as the main driver behind it.

Whether it is good, bad, or ugly for markets is up to debate.

However, I believe my most recent post on it can help you navigate the question a little better:

Click here to read the hyperscaler deep dive.

News

Movers & ES Levels

Now let’s get into some ES levels for today.

As I mentioned last week, we are now seeing the result of the trapped participants at both $7,500 and $7,400.

Yesterday, it seems sellers accumulated around the bottom range took their chips off the table and covered their positions. This is why we rebounded hard and fast from the lows and ended up closing near the upper range where lots of buyers are probably accumulated now.

This is a key auction for the broader trend, as $7,500 remains the cutoff point dividing the current “P” shaped volume profile.

Bulls want to close the day above $7,500 at all costs, otherwise sellers could take advantage of the potential weakness here and pressure the accumulated buyers at this level. Otherwise I see a pullback to $7,475 before a second run to ram through $7,500.

Bears will now defend $7,500 as the most important cutoff point, otherwise we could see the index go back toward $7,540 or higher. Closing below $7,450 would be a major win for the bears and potentially attempt to tackle $7,400 before the holiday weekend.

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.

Click here to check it out.

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:

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. ⬇