Morning Digest 07/01

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Good morning partner,

Few things to cover this morning:

Yesterday’s Session

Back to a handful of green names, and dozens of others moving lower in the S&P.

As you can probably tell by now, we are bouncing back and forth between a rotation out of tech and into the real economy names, then back into tech while everything else comes off.

Since the S&P price action and plumbing is a reflection of future GDP expectations, my guess is that this sort of indecision reflects the uncertainty around how AI will truly affect GDP.

One day it’s good for the overall economy, and markets take from AI to give to everyone else.

Another day it’s the worst thing for the economy, and markets keep pumping it all onto tech and AI-related names, where all the capex cash is now concentrated.

In case you’re wondering, this isn’t good for the market. Mechanically, this sort of flexibility to rotate between breadth and concentration requires liquidity (an engine’s oil.)

And right now, all excess liquidity measures are headed lower, so either the VIX will spike or we will see significantly bigger moves each time the index decides to rotate.

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

Technology, Industrials, Basic Materials.

In reality, only the first two managed to make a significant move. Notice that this was enough to bring the S&P higher by close to 1% on the session yesterday.

Yet, when the other 8 sectors in the economy push higher, the S&P barely advances. That isn’t good or bad, it’s just the side effect of having a concentrated market.

Real estate, Defensives, Utilities lagged on the day. This is a direct hit to the real economy recovery trade I have been wrestling with here for a few weeks now.

I suspect today’s Manufacturing PMI report, - and tomorrow’s NFP - will provide enough insight into that theme for me to relay some good ideas for you.

For now, walk away with the fact that cyclicals managed to move higher despite this concentration trade, where I believe some of our consumer discretionary holdings could begin to show positive results.

But,

Only Offside Premium members will get access to the companies I choose to buy and deep dive into before anyone else.

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Sentiment Signal

US Information stocks are being sold/shorted at the most aggressive pace in the past decade.

By now, if you read our deep dive on the AI trade, you understand that for every $1.00 that gets bought in AI-related names, probably $0.30 get shorted as a hedge in software and information.

This chart should tell you two things:

Over the past year, I’ve spotted two such macro trades for you in the DXY at $96 and in WTI at $60.

I believe this will be another win for the books, especially as the $1.5 trillion rug in South Korea is starting to get pulled.

If you missed the South Korean post and how it predicts the NASDAQ’s next move:

Click Here to Read the South Korean Madness Analysis.

News

Movers & ES Levels

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

Yesterday’s futures session was really telling for me.

$7,500 is where lots of sellers came in to fight, as I told you yesterday. The consolidation lasted long enough for these sellers to get trapped and show their hand, where buyers stepped in to force them out and cover.

The result was the sharp rally you see past $7,500 toward $7,560.

A big win for the bulls here, so I am turning bullish on a run toward $7,600 or more now, especially as more days continue to close above the “P” shaped profile cutoff at $7,500.

For today, bulls will want to defend $7,520 as a first line of support, and breaking that would make $7,500 the ultimate support level for today and tomorrow (as Friday markets will be closed.)

Bears want to keep hitting the bids at $7,560 and keep doing so all the way down to $7,520 where I would want to see a sharp pierce and bring the index lower to $7,500 to consolidate.

This gives us a nice 100-point range for the foreseeable, where I would like to act long at $7,500 to $7,520 and look for reversals or continued breakouts at $7,560.

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.

Like yesterday, when I announced my DCA into:

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. ⬇