Morning Digest 07/09

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Good morning partner,

Few things to cover this morning:

Yesterday’s Session

A sharp recovery in the second half of the session after the structure I pitched in the morning digest played out took the S&P 500 out of the daily lows.

However,

Notice how this recovery attempt was pulled off by only a dozen names, all centered around technology and AI-related plays like Broadcom (AVGO) being up over 4%.

In other words, this was a shift back to the concentration trade as opposed to the rotations into the HALO and real economy stocks that have benefitted from risk-off days the most.

Notice one thing though, the swings are getting more and more aggressive each time this tug-of-war happens in the market.

I will wait to see what the Fed does in terms of liquidity aid in the M2 Money Supply figures to gauge how much “oil” this engine needs to avoid breaking something in the rotation.

So far, it seems policy is implemented around supporting this smooth function.

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

Only Energy, Technology rose.

This is a completely different behavior than was seen throughout last week and earlier this week.

Usually, technology stocks will go up along with other AI-related players like basic materials and industrials.

This time around, however, it seems renewed Iran fears have worked their magic on the energy sector, and a slight risk-on day was seen in tech stocks.

Meanwhile, basic materials was the biggest laggard for the day, contradicting the price action in technology. Probably one of these is wrong.

I am of the opinion that a restart of the Iran conflict is an opportunity for Trump to either TACO or to call the 150th victory over Iran with no actual changes made. So the market has that belief blowing on its back right now to push higher.

But,

The fact that most sectors decided to ignore the AI rally yesterday is concerning. I believe no natural price action will be seen until South Korea is finished wiping out all its margin calls.

Here’s how South Korea affects the memory trade and other US equities.

Coming to a Market Near You

This Friday, one of South Korea’s biggest companies is going to be listed in the US.

SK Hynix, making up roughly 30% of the memory market and over 50% of the KOSPI, is apparently seven times oversubscribed.

If this will be anything like SpaceX, then I expect to see a good first couple of days in the price action, with a rising tide that lifts all boats.

All boats being Micron, DRAM, and the NASDAQ altogether.

Also,

This should have a negative effect on our Offside portfolio as we are overweight software, so I would think of this as an opportunity to finish out the last stages of the DCA plan at lower prices.

As you know, for every $1 that goes long the memory/semiconductor trade, probably $0.30 goes short software to hedge it out.

If you read my Adobe deep dive, you understand that the unwinding AI trade is going to bring a trillion-dollar buying wave back into software.

Click here to access the report.

News

Movers & ES Levels

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

Yesterday I told you $7,450 would be the determining factor between a renewed bull market or a prolonged drawdown.

We barely scratched it, then saw a sharp recovery as futures still trade higher by ~0.10% this morning.

What I see here is the ultimate effort from the bulls to get a daily and weekly close above the $7,500 cutoff point in this “P” shaped profile.

With this shift comes a renewed range back to the $7,525 and $7,575 area where balancing can take place. I believe $7,552 could be very telling as far as volume concentration and time spent.

If we manage to close above $7,552 and trap aggressive sellers at $7,575 then we can very well have a setup to ride the SK Hynix listing on Friday through that upper level and get past $7,600 in a hurry.

Over 400 points have been provided this week in ES levels.
That’s ~$2,000 in profits trading Micro futures contracts.

Here’s where you can reinvest those and keep compounding on delivered alpha.

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.

As I said above, I expect to see some drawdowns this week as the SK Hynix trade lifts the semiconductor/memory names to draw software and real economy names lower.

That’s a great DCA opportunity, so stay tuned for our live email alerts.
Still, we’re up 2.1% in a month since inception.

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. ⬇