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Good morning partner,
Few things to cover this morning:
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Yesterday’s Session
If that’s not a rotation… I don’t know what is.
Someone asked me yesterday if this was going to be a market crash altogether, and I said no with high certainty.
In fact the $7,750 buy level on the S&P futures was reiterated from yesterday’s morning email.
Why?
You’re not seeing a sharp selloff or continued selling activity, but rather an orderly and organized flow of block sales.
This is how bear markets begin, but that’s not how crashes happen.
Especially if you see all the other non-AI sectors end up massively in the green for the day!
So, if I had to describe what’s happening, I would say it is the tug-of-war being pulled more from the real economy side of things instead of the AI complex as it was previously being done.
Zooming out from all this, you should keep in mind the biggest shifts happening right now across the market and the U.S. economy as a whole.
They will be driving most of the news cycle and the price action in the coming months.
Let’s take a look at Yesterday’s leaders and laggards:
Healthcare, Materials, Cyclicals.
As mentioned above, this is not what the session looks like during a market crash, but rather during an orderly de-risking and downtrend.
The leaders have a lot to say about where investor preferences are at the moment too.
Healthcare is, well, the best expression of a risk-off preference for investors.
So I will focus more on the rest of the leaders in cyclicals as the first area where money was willing to flow into.
There’s a reason for that as well.
Falling 10-year bond yields and efforts to normalize fuel prices create a much better environment for the consumer to continue spending and increase future earnings prospects for the sector as a whole.
Last quarter I sent over a deep dive on the one consumer company that is currently cheap enough to present a decent upside opportunity in this environment.
The idea is still valid, and so is the price.
Forget TradingView
If everyone has access to ready-made technical indicators on platforms like TradingView, then do you really have an edge in your trading?
The answer is not really.
That’s why I spend a lot of my time building and developing models of my own, to find as many fundamental and technical signals as possible.
One clear signal was sent in the Telegram group for the TLT bond ETF when it traded at $77.
Another was sent for Weyerhaeuser (WY) last week when I pitched it in an entire company deep dive for Offside Premium.
We ended up buying the stock, and it is up more than 3% since.
More importantly…
It is up during a week when the S&P 500 and the entire AI complex was shaken out, showing you just how powerful a properly executed research plan can be for your wealth.
This is one of the handful of stocks that were screened after a very clear signal was found inside last month’s PMI report, where 80% of my trade ideas come from usually.
Now given the price action happening within the market right now, and a recent study done after my talks with hedge fund managers…
I have found a whole new place to look for buying opportunities, ideas that are simpler and more long-term focused to earn my (and your) time back away from the screens.
I’m looking forward to sharing that over the coming days so stay tuned.
Meanwhile, you would be best served by understanding what is really driving the AI selloff right now.
It’s not demand, physical constraints, or any of the “bottlenecks” you’re being told about in social media.
In reality, it’s all about capital.
News
CoreWeave Credit Prices a 60% probability of default in the entire company, sadly, most of the neoclouds today have a similar debt structure on a failing AI bet. The question is who picks up the tab?
Breadth Comes Back to the market after this week’s selloff, with capital moving into other asset classes like bonds and non-AI stocks, this is my view of a real economy rotation coming into fruition for you in real time.
PPI Inflation Jumped 6.3% to be its highest since 2022, I have many reasons to believe that the only way to fix inflation is by letting the AI trade collapse on itself and let the market adjust, more on this later.
The IEA Will Release 20 Million barrels of diesel immediately, this is another great point for our long/short diesel spread, which was responsible for a lot of our gains yesterday. Here’s the entire idea.
Movers & ES Levels
Intuit 📈 Gained over 6.3% after announcing a new acquisition in the software space, giving yet another piece of evidence to prove that when AI sells off, money will race to these cheaper software stocks.
Nike 📈 Rose over 5% after capital rotated into the better risk/reward setups in terms of valuations and earnings yields, a lot of that money obviously came from the AI selloff.
Neoclouds & Computer 📉 Stocks fell by 6% on average after Barclays analysts cited doubts over whether AI demand will translate into meaningful revenue growth for these companies.
FMC 📉 Slipped over 30% after the company significantly missed its quarterly expectations on its agricultural business, which was supposed to boost productivity with AI implementation.
Now let’s get into some ES levels for today.
Yesterday I told you to buy $7,750 as it was the best R/R in today’s range.
The index is now up over 50 points from that level, even after the hot PPI print.
I will suggest that, if you took that trade, you consider parking those gains in some of our long-term buy and hold companies instead, as the tape is about to get a bit wilder.
Today is options expiration day, so I expect to see a bid over $7,800 toward $7,850 maybe and then we close around there.
Monday is when we’ll really be able to tell where the market wants to go, once we’re past the expiration gamma exposure.
Take it easy today if you haven’t traded these levels.
Portfolio
A nice bounce in the portfolio even with the S&P selloff.
The majority of the jump came from me rolling over the memory put spreads, where I collected 90% profits on a short put and rolled it out another month to finance 100% of my long leg.
Simply put,
I have been completely wrong in the timing of this selloff for two months, yet I am going to make money regardless through this strategy.
Now all of the PMI names I sent out this month have also done extremely well, I even took some profit off the table yesterday from my U.S. vs Japanese carmakers…
Realized gains now sit at $15,200.
But,
The important part is that the market is potentially starting the rotation I was talking about last quarter, out of AI and back into the real economy.
PMI has proved it already.
So instead of trading the noise around it with complex long/short equity and options structures…
I am pivoting back into finding home runs in companies that have all the right ingredients to become multi-baggers.
The reasons why I’m pivoting will be shared soon, and like I said there might even be a webinar on the whole thing.
Stay tuned for that.
Here’s the positioning update for today’s premium members:
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