Morning Digest 07/13

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Good morning partner,

Few things to cover this morning:

Friday’s Session

Not much happened to close last week, the S&P 500 got really close to a new all-time high but the dragging headwinds in the AI trade turned out to be an issue.

I had anticipated that the SK Hynix listing would be bullish for the overall tech trade (and therefore the market), though I now suspect the increase in supply is having more of a negative effect on the outlooks placed upon this sector.

As the semiconductor and computer sectors (the AI trade) sold off to close the week, the rotation into the HALO and real economy names was reignited.

I think the tug-of-war that I started covering a month ago will continue, albeit in a more aggressive pace as the Fed is forced to continue to push the M2 Money Supply beyond historical growth norms.

The engine is running hot, and it needs a lot of oil. At some point, we either step off the gas (rotate into HALO in an orderly manner) or end up hitting a brick wall (see a broad de-risking out of equities.)

For now, we remain flexible in both outcomes with a 5% outperformance to the S&P and 62% cash position.

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

Only Energy and Utilities.

More than a rotation, I think this was a sign of the broader de-risking I just mentioned.

Because this is based on one week’s price action, driven by renewed fears around Iran, I believe we may see a different sort of behavior this week, revealing the market’s true intentions in this concentration vs breadth trade.

Notice, however, that materials and industrials were the worst performers.

This has everything to do with expectations, as markets are choosing to dump areas with too high of an expectation first.

Which got me thinking of a theme not a lot of people are even thinking about right now:

After reading my five headwinds in the AI trade post, I suggest you stay tuned this week because we’ll combine the sluggish demand with the massive supply influx that’s on the way.

Simple economics dictate this should crush margins and EPS for the very sectors that were dumped the most last week.

The Prophecy is Being Fulfilled

A $1.5 trillion rug is starting to get pulled in South Korea.

Last night, the KOSPI lost close to 9% after a horrendous trading session.

In the US, the latest SK Hynix listing may have been another sort of top signal for the memory trade.

The company is now in a bear market along with Micron and other DRAM players (down 20%+ from highs.)

The EWY ETF is soon to reach my $165 price target given to you three weeks ago, where the pitched options trade is now approaching a 600% return.

Click here to understand South Korea’s risk to US stocks.

Now that you understand how a crashing KOSPI can take down the entire memory/semiconductor trade,

It’s time to pick the tech stocks markets will want to rotate into next, all of which will be covered inside Offside Premium.

News

Movers & ES Levels

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

As expected, the SK Hynix euphoria brought us above $7,600 in levels given last week.

However, this morning’s events could bring some overhead pressure as the Iran situation escalates and the KOSPI falls by nearly 9% overnight.

Last night, I sent a trade alert to premium members offering them a hedge in the futures market.

That play could offer some attractive returns today as we start to lose $7,600 and look to fight it out below at $7,575.

For now, the tape has left some pretty strong footprints leading us to a fantastic risk/reward setup here:

Aggressive sellers showed their hand at $7,622 or so to make it a hot area for bulls to attack and ram these trapped sellers.

Aggressive buyers have potentially overextended themselves across $7,565 - $7,552 and most importantly $7,470.

Given how concentrated long positions are, and how “tapped out” the NAAIM index is right now, I wouldn’t be surprised if this coming earnings season give bears a reason to attack the above levels where buyers have been trapped.

Portfolio

3.1% in a month, beating the S&P while still being 50-60% in cash.

Last week, I pitched out two new positions in the apparel industry, which has now delivered over 5% on equity and 30%+ on options.

Even last night’s hedge is treating us well this morning.

If you missed the apparel play, it may not be too late for you:

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.

Here’s the positioning update for today’s premium members, stay tuned for these updates as the metals trade may be put on in the coming days: