Morning Digest 09/23

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That’s Jensen Huang, founder and CEO of NVIDIA. 

He’s pointing to one of AI’s biggest untapped opportunities: farming. 

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Invest in DIT AgTech Today

^{𝘐𝘯 𝘮𝘢𝘬𝘪𝘯𝘨 𝘢𝘯 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵 𝘥𝘦𝘤𝘪𝘴𝘪𝘰𝘯, 𝘪𝘯𝘷𝘦𝘴𝘵𝘰𝘳𝘴 𝘮𝘶𝘴𝘵 𝘳𝘦𝘭𝘺 𝘰𝘯 𝘵𝘩𝘦𝘪𝘳 𝘰𝘸𝘯 𝘦𝘹𝘢𝘮𝘪𝘯𝘢𝘵𝘪𝘰𝘯 𝘰𝘧 𝘵𝘩𝘦 𝘪𝘴𝘴𝘶𝘦𝘳 𝘢𝘯𝘥 𝘵𝘩𝘦 𝘵𝘦𝘳𝘮𝘴 𝘰𝘧 𝘵𝘩𝘦 𝘰𝘧𝘧𝘦𝘳𝘪𝘯𝘨, 𝘪𝘯𝘤𝘭𝘶𝘥𝘪𝘯𝘨 𝘵𝘩𝘦 𝘮𝘦𝘳𝘪𝘵𝘴 𝘢𝘯𝘥 𝘳𝘪𝘴𝘬𝘴 𝘪𝘯𝘷𝘰𝘭𝘷𝘦𝘥. 𝘋𝘐𝘛 𝘈𝘨𝘛𝘦𝘤𝘩 𝘩𝘢𝘴 𝘧𝘪𝘭𝘦𝘥 𝘢 𝘍𝘰𝘳𝘮 𝘊 𝘸𝘪𝘵𝘩 𝘵𝘩𝘦 𝘚𝘦𝘤𝘶𝘳𝘪𝘵𝘪𝘦𝘴 𝘢𝘯𝘥 𝘌𝘹𝘤𝘩𝘢𝘯𝘨𝘦 𝘊𝘰𝘮𝘮𝘪𝘴𝘴𝘪𝘰𝘯 𝘪𝘯 𝘤𝘰𝘯𝘯𝘦𝘤𝘵𝘪𝘰𝘯 𝘸𝘪𝘵𝘩 𝘪𝘵𝘴 𝘰𝘧𝘧𝘦𝘳𝘪𝘯𝘨, 𝘢 𝘤𝘰𝘱𝘺 𝘰𝘧 𝘸𝘩𝘪𝘤𝘩 𝘮𝘢𝘺 𝘣𝘦 𝘰𝘣𝘵𝘢𝘪𝘯𝘦𝘥 𝘩𝘦𝘳𝘦: https://bit.ly/4bzuWCi​}

Good morning partner,

Few things to cover this morning:

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Yesterday’s Session

We seem to be back to normality in the previous tug-of-war behavior of the market.

The print showed semis/memory names leading while hyperscalers (and most stocks characterized as quality and value) declined at their expense.

I believe this is the direct result of oil closing below $90 now, officially beginning to enter a potential bear market if the action holds here.

Lower oil means higher hopes for a decline in the 10-year yield below 5% again, so far that view is beginning to work.

As a result of this mix, future AI financing will be ample once again, and so will the outlooks for these semis/ai names while hyperscalers and FCF positive companies suffer as they ae the ones financing the party.

One thing I’d like to point out is the action in a few of the portfolio names, like Vicor (VICR) being up 18% as part of this bullish push for the AI buildout.

Better yet, we also got confirmation out of the latest setup I sent last night in the crude/diesel spreads normalizing:

While this is the initial part of a potentially larger move, today’s auction will determine how much capital should go into this idea, as the structure either holds or proves to be a failed push.

Click here to read how I’m structuring and playing this diesel trade idea.

Let’s take a look at Yesterday’s leaders and laggards:

Materials, Defensives, Technology.

Everything AI related, especially the materials involved with data center construction and chipmaking, won the day.

This is where the Offside long/shorts in AI paid off big, and are expected to continue doing so as long as this momentum holds.

More importantly,

We saw defensives catch a bid outside of the AI complex, which is contradictory and worth considering as the market’s hedge in this unstable environment.

Since, at the end of the day, bond yields may continue to rise due to one very important factor which has nothing to do with inflation.

So yes, while lower crude prices will help with sub-5% yields, the tail risk still exists for tightening policy and restrictive bond yields to slow down what the market celebrated yesterday.

I would watch this defensives vs materials dynamic as closely as I’m watching the semis/memory versus hyperscalers spread.

On the downside, financials fell the most to suggest the bedding underneath the AI financing sentiment may not be up to the task of expanding the available supply of credit.

Moreover, it may signal that there could be troubles brewing up in the credit world as well.

This is the biggest lever driving the 10-year Treasury bond, and the biggest tail risk.

Here We Go Again

China is dumping U.S. Treasuries again, just like they did in the 2022 episode of an equity bear market and TLT rally.

This begins to build the potential catalyst for a lot of the ideas that have recently been stuck to a watchlist at Offside:

And even buying the TLT after a sustained breakout above $81.75 as initial confirmation.

The reason I say this is because an equity de-risking episode accompanied by a bond rally would set the groundwork for a swift recovery thereafter, where most of these areas and ideas will enjoy the benefits less interest rate pressures, not to mention the benefit to the consumer.

That being said,

I also believe China is rotating this fresh capital into other assets like gold, and as they hold more of the precious metal, they build a base from which their system can be stimulated and yet the Yuan won’t devalue through lower interest rates.

In fact, China has been stimulating its economy already and seeing its currency strengthen at the same time…

All in all, this just makes the case for Chinese equity investments as strong as the case in Japan.

Here’s why more capital is migrating away from the U.S. and into Japan right now.

News

Movers & ES Levels

Now let’s get into some ES levels for today.

A pretty quiet day, so nothing much to update you on other than the fact that the index closed above two key levels today.

One being $7,800 and its upper range of $7,825.

Again,

I cannot be bearish on the index given how easily we’ve been moving past these key areas, especially with very little catalysts and market-moving data lined up in the foreseeable.

One thing I should say though is that any further escalations from the Iran front (now that oil is low and stocks are high) could end this breather in a hurry.

In which case I’d look for $7,775 as the first retest.

For now though, looks like higher up we go with $7,810 as the only support to be tested in the short term.

Portfolio

Decent upside on the portfolio yesterday, especially driven by the AI long/short portfolios and some of the call spreads around China.

The first sign of a bull trend in the diesel segment is going to be tested today, where the decision will be made as to whether I end up buying into last night’s pitch or not.

Everything else looks on track and under control.

Looks like the shift in strategy from looking for home runs and going for bunts is working just fine, as we are back on track to reclaim the all-time high performance in the portfolio by the end of the quarter.

This is how I’m thinking about portfolio strategy for the rest of 2026.

Here’s the positioning update for today’s premium members: