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Good morning partner,
A few things to cover this morning:
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Yesterday’s Session
After a decent deviation to the downside on the S&P 500 last week, we started the week with a broader equity rebound as expected and foretold yesterday morning.
This is where the power of statistical analysis comes handy, allowing you to spot these low-frequency and high-probability moves in the index as well as other asset classes.
We are still in the second phase of what I call a four-phase process for the current market behavior and range.
Liquidations from last week are being met with additional cash collateral, additional assets, and temporary liquidity injections to support certain names.
What comes after is the decision from these custodians as to whether they will choose to hold (or offload) these assets off their books.
What matters at the end of the day is that you:
Don’t lose out by avoiding the risks in AI
Don’t put your neck out there by thinking AI is the only thing that goes up
Just last month, I gave you a watchlist of stocks to trade from my PMI breakdowns, and went three for three.
Last week, I created a new watchlist for November, and just yesterday I alerted Premium members to start buying into some of the higher priority companies in this industry breakout.
Let’s take a look at Yesterday’s leaders and laggards:
Industrials, Materials, Technology.
As always, I wouldn’t put too much weight on the AI-related leaders as this is likely part of that forced-liquidation influence on added collateral just to keep positions open.
Not to say I’m ignoring these areas, one industrial company made my November watchlist and ended up going up by ~7% yesterday!
What I am saying though is that there’s a lot more information to be had by looking past the AI-related leaders like:
Consumer Cyclicals, Communications, Financials
What this tells me is that the market is beginning to reward other areas that are more aligned with where the economic data is headed.
Like GDP and the PMIs.
All point toward the real economy defensives and have been doing so for the past quarter.
However,
We now introduce the cyclicals and financials to that mix as a different view, and I would take it as the first sign of a market that is open to more than just one outcome here.
An outcome that looks like a market shrugging off the previous “growth shock” scares we saw developing in the past.
When you remove these fears from the mix, it’s only natural that sectors tied to cyclical spending and earnings more likely to “swing” would benefit.
That’s especially true for financials.
In my November watchlist, there’s a financial company waiting for your review, a brand you probably use every day to manage and invest your money.
We think this week is the week to pull the trigger…
You’re Either First or Last
One of the hottest areas of the real economy to watch out for is the transportation & warehousing industry, one that I’ve called a “coiled spring” before.
This month’s PMI just confirmed this view, as the industry demonstrated to be leading the manufacturing/cyclical economy’s expansion.
Here’s another data point to consider…
The Cass Freight Index just turned up 5% last month after a quarter of contractions, meaning activity is definitely picking up from here.
What that means for you is simple (but not easy.)
There are companies in the trucking and shipping space that derive 70-80% of their revenue growth based on where this index goes.
Most of them sold off last quarter with the index’s decline, and again most have not recovered along with the 5% spike in the index…
That creates an opportunity backed by fundamental and technical data.
And it’s why this company’s CEO just bought a whole block of shares at the lows (and why we did too.)
News
Constellation Energy Signs More deals with companies like Amazon and Google to provide nuclear power in the AI boom and another area to start considering for a more long-term investment scenario.
China’s Surplus Tops $1 Trillion for a second year as Beijing accelerates their plan to revive financial markets and asset returns, giving our China thesis the economic traction it needs to take off.
Trump Says the Iran War May End Soon as he downplays future strikes after the election results, giving the diesel long/short equity spread trade we pitched a new leg to run on.
Treasury Yields Move Higher ahead of CPI data, essentially betting on a hotter inflation print stemming from heating paid prices in both PMI reports from this month.
Movers & ES Levels
CoreWeave 📈 Gained 5.6% after the CEO reported some clarity on the recent Texas elections and their potential impacts on ongoing data center projects, I think this has everything to do with a day where the AI complex rebounded into Phase II.
QXO 📈 Rallied by 19.2% after posting a better than expected quarter, proving that some of the real economy AI-proof businesses have the most potential to surprise on the upside.
First Solar 📉 Lost over 4.5% as the company came into some uncertainty around green energy Federal tax credits after the election, another hit to the previously hot clean energy sector.
Monday.com 📉 Slipped 9.1% after missing its revenue expectations as a recent hit to the software trade, a mix of an AI rebound day along with Workday/SAP taking market share as well.
Now let’s get into some ES levels for today.
We got confirmation of the $7,460-$7,500 range yesterday to throw us into a renewed upside move as buyers overwhelmed the sellers on this broader equity rebound.
For today, in order for this momentum to hold, we should see buyers step in again at the $7,550 level or so, otherwise stage a breakout past $7,615 even if some sellers show up to play.
It looks like the tape has turned passive on both the buyer and seller side, which may imply the market is trying to figure out where today’s concept of “fair value” lands.
Especially as CPI is about to come out, and another hit coming from Friday’s PPI data.
I would wait until the tape wakes up again, as right now it could be anyone’s guess as to where these inflation prints take the market next.
If you’re a trader, a break away from the $7,550 or $7,615 would provide you with a decent opportunity to take some views.
Otherwise, stay put.
Portfolio
The market breadth has helped most of the portfolio positions stage another leg higher, especially those from last month’s PMI.
As we continue to dig through this month’s picks, due diligence begins to lead us to the areas most likely to stage a few additional points of upside into the end of the year.
For now,
I am more concerned with seeing how the factor rotations end up treating the current selection in our watchlist, as a 22% return since June is enough to warrant taking a more “passive” view.
Passive meaning I will let the PMI picks month to month show me where the shorter-term swing opportunities are, while some of the excess liquidity ready to be deployed into any “home run” opportunities that show up.
Speaking of home runs…
There are really two areas that are expected to massively outperform if the S&P 500 is in fact going to go through the “lost decade” scenario we have been analyzing.
Here’s the positioning update for today’s premium members:
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