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Good morning partner,
Few things to cover this morning:
Yesterday’s Session
I don’t think people should panic about the market, despite the bouts of volatility and leg lower we’ve been seeing this week.
Sure, some of the lower levels I have given for the ES may fulfill, but the overall situation is not one that resembles a broader selloff or crash in risk assets.
The reason I say this stems from yesterday’s session, where we saw another healthy rotation into the HALO and real economy stocks away from the AI-related names that hold most of the market’s concentration.
As I’ve said before, as long as we have an orderly rotation like yesterday, I think the S&P 500 will be contained at a 15-20% drawdown at most.
However, the key word is orderly. If any contagion risk from South Korea, equity margin calls, or GPU-backed loans go sour then it won’t be as orderly as it has been.
That’s the tell to keep watching, so far so good.
If anything, this rotation also expands on the view that Enterprise Software could be the biggest winner in this rotation out of AI-related stocks.
Let’s take a look at yesterday’s leaders and laggers:
Defensives, Energy, Real Estate.
This is a mixed tape for sure, as one side (energy) is a bet on continued inflation and the revamp of real economy demand as an impact on oil which is now in short supply.
Then defensives and real estate is also an inflation bet, since property prices and rentals boost through rising prices, and defensives remain bid due to affordability and pricing power from the consumer.
However, if this was a real economy inflation bid, I would expect cyclicals to also get bid.
Though not all of them were, Lululemon (+1.2%), On Holdings (+2%), and Domino’s Pizza (+6.0%) pushed strongly off the lows in this rotational bid.
All of which are part of the Offside Portfolio by the way.
Another One Bites the Dust
What started with the South Korean put options pitch (up 600%.)
Has now spilled over to the US equity collateral that’s being liquidated in order to meet the margin calls in the Asian gambling spree.
Micron, SanDisk, Broadcom, NVIDIA, and others included.
I had made a call for Micron to reach the $600-$800 range by the end of this summer, with roughly two months left we are just entering the $800 mark already.
Because it’s not just about margin calls being met,
It’s about a massive spike in supply capacity coming online from all major players across the world now.
Which hurts margins, earnings, and valuations.
News
Corporate Insiders are selling a record $80 billion worth of equities, just under the 2021 peak of $120 billion to align with how investment bank earnings point to the peaking capital cycle, more and more points converge to signal caution ahead.
Chinese AI Models surprise investors as they prove to be just as powerful as the leaders in the US, with a fraction of the add-on cost for corporates and businesses to operate. This ties back to my oversupply and changing token economics thesis, leading us to a software win at the end of the day.
Merck Releases a new cholesterol pill, which essentially ties into the race to deploy an array of weight loss products in the market. If you subscribe to the capital cycle strategy, you can notice a potential oversupply race forming in the space.
US Retail Sales rose by 0.2% on the month, led by motor vehicle & parts sales, which prompted me to send a live execution alert on my long/short metals trade exposed to automotive demand proven right.
Movers & ES Levels
J.B. Hunt 📈 Shoots higher by 8% after reporting a strong quarter, I had expressed my interest in the transportation industry after this month’s PMI, looks like the outlook was on the money here.
Uber 📈 Rose by 1.9% after it announced the acquisition of Delivery Hero, another industry stake for its wider portfolio. Click here to read our Uber deep dive and price target.
TSMC 📉 Fell by just under 3% despite announcing a 77% spike in profits, as the wave of several peers looking to expand capacity and supply is starting to worry investors around future impacts on margins and pricing power.
United Airlines 📉 Declined by 1.8% after citing renewed fuel cost concerns in its earnings release, showing us the alpha remains in trucking for now, with airlines becoming a call option on a Hormuz resolution.
Now let’s get into some ES levels for today.
Yesterday, I told you bears had one job, and they got it done.
First they took out $7,575 with relatively little effort given that the bulk of trapped buyers were set at $7,552.
That’s when the sellers showed their hand really, as you can see how little time we spent at that level. Now after that I would lean on $7,500 as the ultimate support for the weekly close considering it remains the cutoff level in this “P” shaped profile.
Meaning, a close below $7,500 could quickly get us to $7,450.
So, bulls have a massive task and it is to get us above $7,500 and potentially close between $7,525 - $7,552 again to protect the uptrend.
Otherwise, I think bears fight at $7,500 and start to become more passive below.
Portfolio
After a 3-4% channel in performance, the Offside Portfolio has now reached the 5% threshold in just over a month since inception.
Even better, while being 58% in cash.
As mentioned, I have added two names in the wholesale defensive sectors, and a proper deep dive is soon to hit your inbox if you’re subscribed to Premium.
That trade due diligence is dropping soon, after alerting members of my metals long/short equity trade executed yesterday, so stay tuned.
PLEASE NOTE THAT PRICES WILL GO UP TO $249.99/Mo STARTING JULY 17TH (TODAY AT 12:00 PM)
Markets are getting choppy, make sure you have me on your corner.
Here’s the positioning update for today’s premium members, where a correlation/volatility primer will be added on this weekend:
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