Morning Digest 07/08

Pundits predicted. Polls projected. Most of them missed. Prediction markets didn't.

Kalshi is where people put real money behind their political read — which means the prices you see on who wins the 2028 nomination aren't opinions. They're commitments. Right now, tens of millions of dollars are already trading on who gets the Republican and Democratic nominations.

That's a different signal than any poll you'll read this week.

Trade what you actually believe. Get $10 free to start.

See What the Market Knows

_{Trade responsibly.}

Good morning partner,

Few things to cover this morning:

Yesterday’s Session

I think this may be the first time in a month that I see a net de-risking of equities rather than the rotation into real economy names we’ve been spotting.

It’s understandable, as the Iran war may have sparked up again last night, sending crude oil futures higher by 6.3%.

Of course, not all stocks went down as hard as those who had already demonstrated signs of the previous rotation, such as the semiconductor and memory trade.

In fact, 80% of all technology stocks are in correction territory (10% down from highs) and 62% of the sector is now down into a bear market (20% down from highs.)

So yes, the AI bubble may have burst already, and it is being taken care of in an orderly fashion as I’ve mentioned in these digests.

Keeping this orderly behavior could contain S&P 500 drawdowns to 15-20% from highs, and the bids in software names like Workday (up 4% yesterday) start to show this mechanical shift is at work.

Here’s my latest deep dive into real economy names to rally off this rotation.

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

Energy, Healthcare, Real Estate.

As the Iran strikes resumed last night, it makes sense to see the energy trade coming back to leadership. What’s interesting to see is healthcare and real estate also leading along, which is a complicated reasoning considering higher oil prices will renew inflation fears.

On Healthcare, insurance and services inflation can boost revenue from operations and premiums.

On Real Estate, inflation can also help boost REIT valuations and rental rates, but that’s not the point.

The point is that inflation should lift all equity sectors, but the market is choosing to bid only defensive areas through this renewed inflation boost.

Industrials, Materials, Technology all went lower. If not obvious already, this is the AI trade selling off, with names like Caterpillar down 3% as people now believe it is an AI company (laughable.)

Again, this is going to continue to be the norm until all capital is rotated back into a healthy balance, but erasing the damage done since 2023 could take a while longer.

You can protect yourself from these whipsaws by getting up to date on the AI trade’s coming catalyst from the IRS.

Mechanic Shifts

Momentum is having its worst quarter since COVID-19.

This time is a lot different though, over 42% of the market (officially), and 60% (arguably) of the S&P 500 is now made up of technology and AI stocks.

By association, these AI-related plays are themselves part of the growth and momentum trade.

Meaning, when momentum starts unwinding as it is doing right now, the entire market has to adjust down with it to allow for rotations.

As covered in Sunday’s weekly outlook, the replacement is coming from three areas:

Spotting that rotation through the price action has led me to select companies based on where the best risk/reward setups are right now.

Which is why the Offside Portfolio has outperformed the S&P by over 5% in the past month.

This is my latest equity deep dive, and an options sleeve to go along diversify the risks.

News

Movers & ES Levels

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

All major levels played out yesterday, both to the upside and to the downside.

$7,575 proved to be a failed attempt from the bulls to defend, and as sellers noticed the weakness they were willing to step in aggressively.

That reaction solidifies the level as a potential area where sellers are initially trapped, giving bulls an opening to attack again.

Then $7,525 prompted an aggressive reaction from buyers as I called for yesterday, making that level similar to the seller trap.

Sellers ultimately won as they rammed through $7,525 and forced the liquidation of those trapped aggressive buyers, and continued without any push back even through $7,500.

I have mentioned that a daily or weekly close below this cutoff at $7,500 is a massive signal for a renewed downtrend, and we had it yesterday.

Today will be a lot trickier as there’s a lot of white space from $7,525 all the way to $7,465. Therefore, that is my initial balancing range for the day, where bulls will have to do everything they can to reclaim $7,525 and wipe out the trapped aggressive sellers.

Bears want to build a bigger cushion and avoid that scenario, so $7,450 must be pierced with the same speed and volume as we saw through $7,525 and $7,500. If that is the case, then we could see some support and aggressive buyers at $7,400.

That would essentially leave us with $7,450 - $7,400 as the decision-maker range between a recovery toward Friday or a renewed downtrend into next week.

$7,525 and $7,450 will determine that today.

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 5% and up 0.8% yesterday when major indexes fell by close to 1.0%.

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.

PLEASE NOTE THAT PRICES WILL GO UP TO $249.99/Mo STARTING JULY 17TH

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 on Cleveland Cliffs (CLF) for starters, a shorter-term swing position I am considering after my PMI breakdown post, which will be hedged in case my thinking is off.

Get familiar with this trade idea below before I post the structure and management inside Offside Premium. ⬇