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Good morning partner,
Few things to cover this morning:
Yesterday’s Session
Another consecutive day of the concentration trade, as forecasted last Friday, this is a potential “dead cat bounce” on all of the favorite AI trades of the market.
What will determine if this ends up being such a bounce, or a renewed bull run, is the momentum/growth factor in the broader market.
Such factors sold off by 20% from the highs as covered in my last Sunday weekly plan, a level where capital tends to exchange hands and figure out a rotation back into the trade or forced liquidations.
That said, we are entering arguably the most important earnings season of the year, where hyperscalers will determine whether we retest these 20% selloff areas (they are typically tested 2-3 times before the market makes up its mind.)
On top of that, we have Trump escalating the Iran war and tariffs once again, announcing over 100% tariffs on certain items and countries last night.
I suspect today’s session will be more of the rotational nature rather than the AI and tech concentration that we saw on Monday and yesterday.
Let’s take a look at yesterday’s leaders and laggers:
Technology, Materials, Energy.
The clear culprit of the concentration and AI trade, no surprise there.
Again, due to reasons stated above, I expect today’s leaders to look a lot different than yesterday’s, especially with Google earnings coming out tomorrow to kick off the hyperscaler mix in this very important run.
What’s interesting though, is that healthcare and financials also followed this leadership.
I believe markets are considering the potential of risk-off inflation hitting the market in the coming months, unless Iran is suddenly resolved.
I say this because healthcare benefits from inflation growth shocks, being one of the most defensive sectors out there. Financials, on the other hand, benefit from the bond yield effects of these inflationary growth scares.
Which directly boosts bank margins and earnings, so this price action is something I’d like to keep an eye on to develop further investment ideas down the line.
For now,
Know that this growth scare is going to show up in the bond market first, so I genuinely suggest you save this breakdown of the bond market and why I think TLT could be a buy soon.
Triggers Coming In
Trump dropped a bomb on the drugmakers last night.
100% tariffs on generic drugs, threatening the lower cost areas of the US supply of these products altogether.
The companies with the clearest moats will be fine I think, but just as there are winners there will also be losers.
From a rotational perspective, I think the GLP1- boom - and its economics - are poised to shift significantly.
With that shift comes a trigger in the opposite end of the trade, which is in overly depressed consumer names beaten down by these weight loss trends affecting their consumption.
There are two specific companies I bought yesterday, and alerted you right away.
News
32% of SpaceX shares are now held in short positions, a reaction nobody expected out of the most oversubscribed IPO of all time. I think this has a lot to do with the momentum/growth factors winding down, affecting all companies with aggressive assumptions and valuations.
China Cuts Spending by 12% compared to last year. Believe it or not, this is great news for Chinese equities in a country that has kept stock returns lower by over investing for decades. More to come on this topic soon.
TSMC’s Margins Are Threatened by Trump’s efforts to onshore chip manufacturing, which is now coupled with a massive wave of over investing into the supply chain. This is when AI winners become losers.
Jamie Dimon made a bearish call on bonds yesterday, historically these are great times to start going the opposite direction (remember his economic hurricane call in 2023?). Either way, this is good for my bond thesis.
Movers & ES Levels
General Motors 📈 Gained almost 5% after its quarter reflected stronger than expected demand and automotive volume in the US. This is where I think my long/short metals trade begins to pay off.
Utz Brands 📈 Is flying 88% higher after agreeing to be taken private by Germany’s Intersnack Group. If you’re thinking this is great news for my GLP-1 boom trade, they are.
Adobe 📉 Fell over 3% after Morgan Stanley downgraded the stock on cited AI competition. This is an Offside Portfolio stock, and I can tell you if it wasn’t undervalued, a downgrade would have brought it down over 8% at least, nothing to worry about as financials show zero evidence of AI disruption.
Charles Schwab 📉 Lost almost 3% despite a 32% jump in profits, I think markets are focused on the fact that Bitcoin’s price action and the momentum losses may bring lower trading revenues to the broker.
Now let’s get into some ES levels for today.
Yesterday’s digest gave you the exact day’s high again.
What’s important to note from the auction is that the buyers that were looking to go all-in to buy the dip at $7,483 and $7,500 had very little energy left at $7,552.
I say this because we lost over 30 points from the high without much seller participation, meaning these big sellers could be saving their hand for a tackle through $7,500 or lower.
That said, I think the auction for today remains relatively simple.
Bulls want to successfully shake off these potentially aggressive sellers at $7,500 and $7,480 if we get there.
Bears want the auction to remain below $7,530 for as long as possible, exhausting the patience of passive buyers until they tempt the lower levels stated above.
If you absolutely have to trade today, I would watch for the breaks or rebounds at those lower levels, otherwise an aggressive buying return at $7,530 - $7,552.
Portfolio
Opened another equity & options sleeve yesterday.
The portfolio holdings remain relatively strong in this tug-of-war between rotation into HALO and concentration into AI and tech.
Which is why I’m comfortable keeping 52% cash holdings while we continue to push back to - and above - a 5% performance threshold.
Keep in mind, we are still under two full months of operation, so I want to take advantage of a strong start.
As cumulative profits have delivered over two years’ worth of membership costs, I decided to raise prices last week.
Still,
You can enjoy an introductory rate of $125.00/month for the first three months - enough to cover over a year of membership through profits - and then it kicks up to the standard new rate.
Here’s the positioning update for today’s premium members:
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