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Good morning partner,
Few things to cover this morning:
Yesterday’s Session
Risk-on day for the AI names altogether, as most of them had seen their volatility come crashing down into normalized levels again.
The recent selloffs, and withdrawal from big money managers, were likely due to that same increased volatility.
Now that it’s fading, I believe we could see a new round of rallies in the AI names, with less of a need to hedge a less volatile book.
Meaning,
You will see more days like yesterday, where both AI and software managed to see eye-to-eye and go up together.
Which is good for the Offside Portfolio (now up over 10%), except for the fact that a lot of those software positions are going up too fast for my liking.
So I decided to cut 1/3 out of two names yesterday and realize some profits before the same volatility that crashed AI last week reaches software soon.
In terms of the auction, this looks like a broader rally and a potential “cleansing” event after the Situational Awareness bailout last week.
Continue to expect the tug-of-war to continue between real economy stocks and AI though.
Because, after all, GDP and the stock market have become one and the same bet now.
Let’s take a look at yesterday’s leaders and laggers:
Materials, Technology, Industrials.
We quickly went from the consumer leadership last week down to a materials and AI leadership to start this week.
Notice, as I said above, that this is a new wave of rallies in the AI trade, which includes all of the raw materials and industrial input to keep building the infrastructure.
However,
As I pointed out in yesterday’s take on GDP, the current rate of infrastructure spending is unsustainable and akin to previous excess periods.
All of which spiked inflation and forced the bond market’s hand to cut the plumbing at the source (by driving yields higher.)
Today is no different.
So while I am looking for specific names to ride this wave higher, I am also aware that this won’t be a part of our portfolio for long.
Roaring Back
We just got the latest, and arguably most important, indicator for our mid-cap thesis.
The Manufacturing PMI has now been in expansion for over three consecutive months, driven by continued demand and price stability across many of the participating industries.
While it seems most of them have to do with the AI race and buildout, there were a few signals coming out of alternative areas like Plastics, Metals, and Apparel.
Stay tuned,
This week I will deliver a proper PMI analysis for you, and relay the industries of interest to find appropriate trade ideas for the coming months.
I’m looking to do that again for you.
News
Most G-7 Interest Expenses have crossed defense spending as global yields continue to rise. I forget who said it, but when a country spends more on interest than its own protection… It quickly becomes sort of a Ponzi. Nonetheless, this could be great news for our long bond trade now awaiting confirmation.
Coatue Sinks 8% last month as the AI selloff affected other hedge funds. According to Goldman Sachs, these funds have set a new unwinding record, so their book is likely already hedged to avoid a new Leopold-like fiasco.
The US Supports the Yen once again, as Treasury Secretary Bessent looks to support the bond market through a sustained carry trade with Japan. He’s already expressed interest in issuing less bonds.
Citadel Sees $500 Billion of additional chip financing coming, which is over 5% of the total high-yield issuance market. The problem is that these loans are backed by chip values, so we’re inherently assuming chips only go up from here… Remember housing?
Movers & ES Levels
Corning 📈 Spiked over 6% as Truist Bank upgraded the stock on new demand outlooks. In reality, nothing other than a new AI rally changed for the company. This is why I’m focused on finding sensible plays in the space to take advantage of now.
Alibaba 📈 Gained over 4% after reporting its latest AI model Qwen3.8-Max. Management says this model now rivals Anthropic’s leading models with a much lower cost to run, happy to have this name in the Offside Portfolio.
Marriott 📉 Lost 7% after delivering weaker guidance for the coming quarters, as the bottom K of the economy is beginning to show further weakening signs, a theme I explained in depth yesterday in my GDP and inflation take.
GameStop 📉 Sank 12% after announcing a $1.4 billion convertible debt issuance for its common stock. In other words, the company has racked up a lot of debt and no FCF to pay its interest, so issuance becomes the only option (sound familiar?)
Now let’s get into some ES levels for today.
After one of the worst relative weeks since COVID, the market is back up to a new all-time high in less than a week…
I want to start by saying that no business got done between $7,570 and $7,625.
Which essentially means participants came into new information, information that shifted their perspective of value for the S&P so nothing got done on the way up.
Where buyers and sellers agree value is right now lands on $7,630 - $7,650 but even there it doesn’t look convincing.
Transactions got done at those levels, with a two-way flow as a healthy sign of a market in agreement.
However,
Volume was really weak and almost nonexistent there, so I suspect we could see another effortless leg higher from here, as long as we don’t lose $7,615.
There is enough empty tape below that level that the sellers could wake up and try to tackle $7,547 if we lose that $7,615 level on no buyer response.
That lower level has a lot of trapped buyers which aggressively showed their hand to bring us this current rally.
Now here’s the problem if we don’t see another leg higher today or this week:
We are now in a “b” shaped profile
One of the most dangerous places to be near the highs, as a thinning amount of business gets done (like we saw on the way up) forcing markets to either break out on new information/volume, or come back to where business is being done.
The difference maker between continued uptrends or a massive reversal is ~$7,488.
Portfolio
The beginning of August has been good to us, as the portfolio has reached a new all-time high of 10%.
In our month-end portfolio review, I showed you the philosophy and strategy behind this performance, and where I think my risks and opportunities are for the second half of 2026.
One big change was made yesterday, as a few of our top holdings rallied too much, too fast (a good problem to have.)
However, it is my responsibility as risk manager to know when to trim a hot position before volatility forces others to reduce before me.
So we trimmed 1/3 out of our two biggest names, realizing roughly 1.7% ($1,700) in portfolio profits with 2/3 of the position still running.
By the way, those profits would have paid for over 28 months of Offside Premium.
Our value is absolute, click here to claim 7-days free.
The cash position still represents over 57% of the portfolio, leaving us with plenty of room to start implementing additional names in both the mid-caps and Chinese tech theses posted.
It also acts as a major diversifier in terms of DXY swings upon the recent long-end bond yields rising to 20-year highs.
Here’s the positioning update for today’s premium members:
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