Morning Digest 07/07

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Good morning partner,

Few things to cover this morning:

Yesterday’s Session

Back to concentration mode from Thursday’s rotation into the real economy.

However, this was a rather weak rally with not much to show for the bulls.

If you read yesterday’s digest, you know the S&P hit the brakes at our exact upper range target, which has something to say about today’s session.

I found it interesting that, even though the AI-related trade led on the day, these names are also back to posting losses in the overnight session, a side effect of South Korea’s Samsung selling off after earnings.

Again, I want to state that the market will likely remain in this tug-of-war for a little while longer, until the true effects of AI are clear in the economy. Until then, be prepared to see real economy stocks win some days, and AI-related stocks win on other days.

Liquidity is a must for these wild rotations, which again is why I think the Fed is choosing to pump the M2 Money Supply at a second standard deviation rate.

If you’re a trader looking for a stronger signal than that, I made a YouTube video covering my PMI indexes breakdown (where I get 80% of my trade ideas from.)

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

Comms, Technology, Financials.

This was likely the retail crowd prematurely anticipating good news out of Samsung, but as we know from the world of expectations investing, even a blowout quarter isn’t enough when the price already embeds an even bigger quarter.

That said, I do think it’s interesting to see financials and consumer cyclicals make it into the leader mix.

The 10-2y Yield Curve has been steepening by roughly 15bps over the past two weeks, so maybe there’s some hope for banking stocks to see better profits soon? In the PMI report, I broke down why I am beginning to like the finance industry right now as well.

For cyclicals, I am preparing my apparel and retail trade idea deep dive for this week as well, where LULU and an ONON sleeve will be two of the best ways to play into this theme.

Join Offside Premium to access these reports.

Korea Does it Again

Samsung is down overnight, taking Micron and most of DRAM with it.

This is one of those instances when a stock has a double beat (revenue and EPS), yet the price still sells off like in this case.

A perfect lesson in expectations investing, and why we always begin by asking:

If the answer is an unrealistic future, then we move on.

Expectations around the DRAM and Semiconductor trade (AI as a whole, really) have become too aggressive, which is why I started warning you about it two weeks ago.

Click here to read my South Korean deep dive, and how it affects US equities.

Now that Samsung is through, we may see Micron get lower into the $700 range or so.

But,

There’s still one more catalyst in the mix which I think will determine the next leg:

Another massive supply injection, and perhaps another retail trap, we’ll see how the market reacts to this one on Friday July 10th.

News

Movers & ES Levels

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

Real shallow dips were passively bought through the day, showing that neither bulls nor bears wanted to show their hand and intention on the index for the session.

However,

That changed toward the end of the day, as the given $7,600 level was briefly touched to prompt a shift in behavior. Aggressive sellers, which were absent for the whole day, decided to come in and play.

This means $7,600 has become an even more sensitive level, as it holds the latest round of trapped sellers.

Bulls want to tackle $7,600 today and close above it, an outcome which will be made probable if they manage to defend $7,575 - $7,552 through the day.

Bears know what they got themselves into here, so they will have to show their hand and take us below that $7,575 - $7,552 range to see a close below the $7,525 and $7,500 cutoff point.

If bulls win the week, I see us pushing back higher into the $7,700s on a strong FOMC, earnings season kickoff, and inflation data (in that order.)

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.

In less than a month, we have managed to outperform the S&P 500 by just over 3%.

Not a bad start, especially as we are still 62% in cash.

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.

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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 trading brief for On Holdings (ONON) for starters, a shorter-term swing position I am considering, get familiar with my thesis before I drop the entire deep dive in Offside Premium. ⬇