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Good morning partner,
Few things to cover this morning:
Last Week’s Session
We are at what seems to be an inflection point for stocks, considering how the market behaved last week.
As you know from our weekly plan yesterday, the value factor is starting to gain ground as momentum fades. This is a direct threat to the AI trade and a net benefit for the path markets were following in the first quarter.
Which is a rotation back into HALO real economy names.
What interrupted this path was the introduction of massive capex, but it seems the hype is going quiet now.
Friday brought you a selloff in the second half of the day, driven only by a handful of names while most other stocks finished in the green.
NVIDIA, Micron, Broadcom, SanDisk.
More importantly, this is the very footprint of a rotation won by these real economy names.
Let’s take a look at last week’s leaders and laggers:
Materials, Industrials, Utilities.
While this would usually be tied to the AI trade and the materials needed for the infrastructure buildout,
This time the outperformance in these three sectors is mostly attached to the real economy rotation.
Look at Cleveland-Cliffs, jumping by over 25% since I pitched it to Offside Premium members, leading the materials sector higher as domestic steel booms on new tariff announcements.
Industrials can be explained by transportation and defense, as Lockheed Martin delivered very strong earnings along with some of the biggest trucking companies in the US. Recall this was a pitch I made when the PMI breakdown was sent.
All told, it seems the market is beginning to align with the possibility of mid-cap stocks in the real economy beginning to outperform.
New Chip on the Block
Chinese chipmaker CXMT has made its debut in Hong Kong with a 535% rally.
What started in the United States euphoric wave for anything AI-related has spread to Japan, South Korea, and now China.
I believe markets could be up today on the sentiment, but here’s what I would really focus on:
Samsung is considering buying DRAM from CXMT, not US names as prices and quality are bar none in China
The introduction of CXMT in the market only adds to the supply pressures quickly coming online, shifting the economics for everyone else involved
Funding is quickly headed away from NVIDIA and now up to Chinese powerhouses
All that to say, this is when AI winners become losers.
It’s also interesting to see that, as funding heads to China, OpenAI is suddenly in need of a $500 billion injection from NVIDIA announced overnight.
There’s one winner in that funding round, and it’s not who you think…
I will reveal the winning setup from the biggest data center funding in history inside Offside Premium.
News
FOMC Time this week, the Fed faces a high-pressure meeting as most are now expecting a rate hike as Iran escalations continue to delay any expectation of inflation normalization.
Softbank’s $40 billion OpenAI Stake is being syndicated through over 20 new participants, as they seek to monetize their current holdings in the private company. Like Blackstone liquidating their private AI holdings, this act by Softbank is another sign that people are eager to take profits off the table.
Another Ceasefire comes between the US and Iran last night, as President Trump says he’ll give diplomacy “some space.” Like many times before, there is no detail nor intention of a resolution it seems, back to the TACO trade.
Big Companies are hiring again despite the “AI will replace jobs” narrative, debunking yet another stage of the bet justifying trillion-dollar AI valuations.
Movers & ES Levels
SAP 📈 Jumped nearly 10% after reporting a strong quarter, shrugging off AI-related pressures around its business. Workday owns a larger share of the market and is a direct competitor, as part of the Offside Portfolio, I expect it to deliver a similar move around earnings.
Digital Realty Trust 📈 Gained over 10% after a strong quarterly result led by data center demand. It would be helpful to differentiate the driver behind this growth between rental rates and property values and actual supply growth.
Tesla 📉 Lost 2.1% as extended AI spending is driving its already negative free cash flow deeper into the red, showing markets may be starting to care about value and quality as a factor.
Oracle 📉 Dropped over 4% despite announcing a new $7 billion deal with the Pentagon, as the spiking default probabilities in their CDS products outweigh the positive news, reinforcing the preference for better quality balance sheets.
Now let’s get into some ES levels for today.
We rammed through the trapped buyers at $7,483 last week and even managed to close below the key $7,450 mark.
However,
The overnight news around a ceasefire in Iran has sprung markets above the “P” shaped profile cutoff point of $7,500 for now.
Buyers want to have a close above this cutoff today, and even bring the auction within the $7,525 - $7,552 to solidify a renewed uptrend for now.
I suspect sellers, which are acting passively in the overnight auction, will become aggressive and step into the market when the above ranges are entered.
With that, I think we can establish a range where sellers and buyers will be trapped accordingly at $7,430 and $7,525 - $7,552 accordingly.
A start of the week that will set the tone for the coming days.
Portfolio
Remember that drawdown driven by the SK Hynix listing?
Mostly erased now, but I suspect we may have another such episode as the CXMT debut is bringing a new concentration trade back to the AI space.
Which could directly draw capital away from the HALO real economy names our portfolio is made up of.
I’ve mentioned an intent to add more growth-oriented names to the portfolio, a small contribution which was made by a 20% gain in Cleveland-Cliffs.
Other such plays will likely reveal themselves as PMI data comes out next week.
For now, I will plan the exposure around the core holdings while I keep screening the mid-caps thesis for an appropriate watchlist.
You can access my research behind that inside Offside Premium.
Here’s the positioning update for today’s premium members:
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