🗞 A New Dawn

WHILE YOU POUR THE JOE… ☕️
I Was Kidding, Loser

He knows his audience… Kind of

After days of taunting with the Fed chairman Jerome Powell, which is a repeat of the events of 2018, Trump decided to pull back on the bullying a little bit.

It turns out he has no intention of firing him, even after calling him a big loser and pretty much saying he has no business running the Fed. ❌ 

Lol.

Maybe it was all a tactic to get on his good side and finally get what he wanted, which was rate cuts.

Speaking of getting what we want, let’s get on with today’s email 📧…

A DEEPER LOOK
Don’t Stop Looking

What you see here is a widely followed indicator of where the economy is and might be going, according to traders.

The ratio of Gold / Copper prices, and it usually swings to the extremes you now see above, where the upper end of the range signals potential recession (or at least a slowdown). 👀 

The lower end points to economic growth and the precedent to inflation and even rate hikes.

Right now we’ve gotten to the top of the extremes, not seen in five years when COVID was the cause of a recessionary belief. 📉 

If you’ve been with us for a while (thank you), then you know our base case is set on a recession for the US economy; this is just the icing on the cake.

Now here’s the cherry:

This is the yield curve, calculated as the yield of ten-year bonds minus two-year bonds.

As you can see, we are now past the 2022 highs, when everyone and their dog thought the economy was entering a recession. ✅ 

In a way we did, and have been in one since, but here’s what really matters in this yield curve:

• It was inverted for the deepest and longest time in history, which 100% of the time precedes a recession.

• We are now “uninverting” or going back to positive, which is also the tbond market’s way of admitting things aren’t good anymore.

To keep it in a nutshell, liquidity is drying up, and things are about to get really bad really soon. 😥 

That being said, not all hope is lost.

You are going to experience a new volatility regime, as liquidity leaves the market and real rates start to rise globally, the swings you’ve been seeing in the S&P 500 will sort of become the norm.

50 points here, 200 points there like nothing. 🤷‍♂️ 

This is why I highly recommend you join us in our remote trading floor chat, it’s a free way to get the primer of what is likely to happen through the day, where volatility is going, and what we plan to do about it.

See you at today’s meeting in about an hour and a half ⬇️ 

TRADE OF THE WEEK
Elon’s Grandoise

Two days ago, we bought Tesla stock at $224, but that doesn’t mean this will be the last earnings swing we give out. 🎯 

Far from it.

Our chat members got the entire analysis within the morning meeting materials, and now they are waking up to over 15% profits, and for those who did options, well done.

Given that we are in the middle of earnings season, there’s an honorable mention we might take a look into, and that’s Google stock.

The view (if we land on one) will be posted within the chat, but that’s for another day.

Here’s why we chose to buy Tesla:

First, as we always do when assessing any other investment or trade, we need to consider current volatility.

In the case of Tesla, volatility had contracted within its 5-year average levels, likely causing an expansion in either direction. 📉 

Volume had slowed too, so probably markets didn’t want to trade this low.

Then came the forward P/E premiums, which were at the same level as in 2021.

Yet, instead of trading near the 52-week highs, Tesla stock was now sitting at around 50% of that level today, a big disconnect that meant profit potential to the upside.

Finally, volatility expectations moving forward.

Since earnings are a two-standard-deviation event, we implied the move to be between 5% and 9.5%, something we consistently told our chat members.

Buying at $224 would have made this target closer to $240-$250.

That’s roughly where Tesla traded right after announcing earnings, so I’m okay with pulling profits out of this one.

Now, why we bought at $224 is a whole post in itself, but I’ll give you two words:

Market Profile. 🫰 

GO AND MAKE IT HAPPEN
Not Rocket Science

This is not the first time I recommend this book, nor will it be the last.

Today’s book recommendation 📖 comes at a time when most of you should be watching the macro picture of the entire financial market, and picking up the clues where they make themselves obvious to you.

Hopefully reading it will help you out.

To your success,

G. 🥃