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Good morning partner,
Few things to cover this morning:
Yesterday’s Session
For the first time in over a month, the concentration trade has failed to lift the S&P 500 higher.
Usually, when the technology and semiconductor trade goes up, the indexes end up having a green day despite of what everything else in the market is doing.
Yesterday was different, and I do suspect it’ll mark the start of a new market behavior.
Remember, what stands between an orderly drawdown and an outright market selloff is how quick the rotation happens.
Given the rotation trade has been at play in an orderly fashion for the past 1-3 months, and now starting to have healthy effects on the market, I wouldn’t expect much of a “crash” even if the accounting shenanigans happening inside these AI companies blow up.
That is, if we can continue the rotation trade for a long enough timeframe and contain these losses away from the financial system as well.
A net win for the HALO and real economy trade in my opinion.
Let’s take a look at yesterday’s leaders and laggers:
Technology, Energy, Materials.
Very clearly, this was an AI trade-led day.
But, as I said above it failed to bring the S&P 500 into a green day.
I believe the answer can be found in the second and third place for this rally being energy and materials rather than industrials.
The reason I say that is that the latter probably rallied around the Iran narrative rather than AI.
At the same time, industrials and communication services came off, and there’s an important piece of evidence in that tradeoff:
Technology is the one receiving all the cash flow and booking all the revenues today (no matter how sketchy the numbers may be)
Industrials and Comms are the ones still waiting for the AI promise to fulfill in order to see cash flows and revenues
In a very real way, the AI trade is splitting into separate bets, with markets choosing to stay away from areas that have little clarity in how they will profit from AI if at all.
The truth is, This is when AI winners become losers.
The Prophecy is Being Fulfilled
Three weeks ago, I warned you about the South Korean market madness.
Today, the KOSPI and its constituents are down over 30% since that post was made.
More importantly,
The specific plays that were spelled out in the KORU and EWY ETFs have delivered over 600% returns in their respective options.
But,
You understand that it doesn’t end with Korea.
Right now, credit default swaps (CDS) spreads are spiking for:
Amazon
Broadcom
AMD
NVIDIA
The reason Oracle is now trading below 45% of its 52-week high is because its CDS products also spiked.
So stay tuned, because I will soon cover the latest earnings in these companies and show you why these CDS traders may be acting this way.
News
Samsung is now looking to list in the US stock market after SK Hynix’s bout. Lutnick is pressing both Korean companies to boost memory output in the US as well. Looks like my read on oversupply coming in will play out after all.
Bond Traders have ramped up their bets for a July interest rate hike ahead of the coming inflation data in half an hour. I think more important than the headline number is the commodities and products that are responsible for inflation ex. fuel (specifically AI-related products.)
Another NVIDIA Partner seeks north of $1 billion in GPU-loan financing to invest in AI infrastructure projects. This is starting to prove the oversupply read is in the right direction, and presents a broader global risk around these loans which fail if chip prices come down (they do with oversupply.)
Jim Cramer says the place to be is back in technology stocks after a recent dip, citing boring real economy stocks are only a good play as Iran escalates the situation. I think we both know what to do with this information.
Movers & ES Levels
NIO 📈 Won 3% in market cap yesterday after Goldman Sachs analysts boosted their outlook on the stock, citing profitability and revenue growth.
Twin Vee Power Cats 📈 Delivered a massive 400% run after announcing a merger with an USFM subsidiary and planning to spin off its recreational marine business. I think this is a great signal to pay attention to in the consolidation of industries in the bottom K of the economy.
TSMC 📉 Was down almost 3% even after reporting a 68% revenue jump. I believe this is due to the potential oversupply dynamics I broke down yesterday, especially as more Singapore mass production is about to hit the market.
SpaceX 📉 Is now in an official bear market after a 4.2% decline yesterday, perhaps the momentum trade slowdown and the overvaluation is beginning to bring sense back into markets.
Now let’s get into some ES levels for today.
I alerted you that I would be closing my hedge yesterday in the ES futures market.
The reason is that $7,552 and $7,575 failed to become validated as an opening for lower levels.
With that action, the market has left yet another significant footprint behind for us to consider today.
First, the $7,575 - $7,552 trapped buyers weren’t that easily shaken, and in fact were supported by what seems to be a final aggressive buying attempt lower at $7,532.
Which leaves bears an opening to attack that lower level and ram through the trapped buyers toward the cutoff point at $7,500 where I suspect more aggressive buyers will come in and support the index.
Otherwise, bulls have one job today, and that is to keep supporting $7,552 so that sellers don’t get the chance to ram $7,532 at all today. If buyers succeed, I think a run through $7,575 - $7,600 is likely.
If bulls fail, I see $7,500 - $7,480 just as likely.
Portfolio
Closing in on 4% 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 6.1% on equity and 30%+ on options.
If you missed the apparel play, it may not be too late for you:
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:
Lululemon (LULU)
On Holdings (ONON)
Cognizant (CTSH)
Nintendo (NTDOY)
Tractor Supply Co. (TSCO)
Intuitive Surgical (ISRG)
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:
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