Morning Digest 07/10

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Good morning partner,

Few things to cover this morning:

Yesterday’s Session

A big range and one-sided auction right from the open, though this one is a bit mixed and not entirely divided between the AI concentration trade or the real economy breadth trade.

By that I mean, it seems like every sector managed to push higher except energy and healthcare.

So perhaps this was a risk-on reaction for the entire market thinking that the next TACO or victory call is around the corner, which makes sense for energy to be the laggard and the inflation effects of Iran to hit healthcare’s future pricing and insurance power.

Remember, today is the SK Hynix US listing set to go off at $149 per share.

As shared yesterday, I believe this will be another dividing line between the AI trade and the real economy rotation.

Whatever sentiment the listing draws will answer which area benefits today and next week, but do know that these are the two prevalent themes in the market.

As far as our portfolio, I do expect more bullish action in the AI trade to draw our positions lower in software and other value stocks, which will provide an opportunity to implement the latter part of or DCA program.

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

Technology, Cyclicals, Materials.

Again, this was a clear bid for most of the AI trade.

But,

There was also a lot of interest for participants to go into the consumer cyclical and other real economy areas of the market, which came in perfect timing as I posted the missing piece to my Lululemon trade.

Basic materials also managed to push higher along with industrials, a clear AI infrastructure bid. On the other side, financials and real estate also moved up.

In conclusion, I believe this price action is mostly due to the potential TACO being set up now rather than any larger market force at play here, so I wouldn’t look too much into it yet.

Two Giants Coming Together Again

Hyperscalers broke their peg to semiconductors.

That happens every cycle, and they usually snap back within 1-3 months given their 80% historical correlation.

Which says something about discounted hypers like Microsoft and Meta…

But,

Software names have an even stronger relationship to semiconductors at 95% correlations historically, and that’s been the case for a very good reason.

80% of US GDP is services, and 90% of services rely on software.

So, the narrative that “AI will kill software” is sort of asinine, unless you believe AI will in fact replace 80% of US GDP.

Most of the market is smart enough not to believe that, so the spread between software and semiconductors is beginning to close, explaining the Offside Portfolio’s outperformance so far.

You know who else is smart enough not to believe this story? Nancy Pelosi.

Which is why she bought a ton of call options expecting Uber stock to pop soon.

Here’s my bull and bear case for the stock, and where I’m looking to play it to.

News

Movers & ES Levels

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

$7,525 and $7,552 proved to be very powerful stories on yesterday’s auction.

Given that both attracted a base of aggressive buyers, I’d say these could be support levels to be re-tested in the coming days.

I do not yet know how SK Hynix will affect the stock market today, as it could go both ways.

So my recommendation is, if you’re trading today, go light and be quick to change your mind…

Especially as we approached $7,600 and managed to get some passive sellers to draw the price lower, meaning not even the bears are sure they can take this down on the listing.

Bulls have one task today and that’s to close the week above $7,552 or risk a new wave of excited sellers to attack and bring us to $7,525 - $7,500.

Remember, $7,500 remains the cutoff point between a bull and bear market in this “P” shaped profile, so it is the most important number to keep in mind.

If the listing is net bullish for risk-on themes, then we could very well ram through these passive sellers and see prices above $7,600.

Portfolio

Yesterday, Premium members got access to my latest swing play in apparel.

A straight equity buy with a call options sleeve on a peer to make up for potential lost time in this turnaround story.

Click Here to Access That Report.

More well-structured plays like that are coming next week so stay tuned.

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 a primary metals long/short equity play 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. ⬇