🗞 Aperol Spritz

WHILE YOU POUR THE JOE… ☕️
Nike Just Did It

We pitched you Nike stock a couple of months ago because its valuation was at the lower end of the spectrum. We even gave you our full DCF model. 💻️ 

Now the catalyst happened, and it moved the stock by up to 8% in a single day after the company’s quarterly earnings blew past all of the bearish expectations,

With that being said, you can go into the weekend knowing that you are subscribed to one of the few newsletters in the finance space that actually helps your wallet and your skillset expand.

Speaking of helping your wallet, let’s get on with today’s email 📧…

BE A STEP AHEAD
The Thing Just Happened

Remember that video ^ ?

Well, we have been calling for all the market moves to take place since Monday, the catalyst being the FOMC announcement to cut rates this week as well.

Now, the big thing happened, and markets like small-cap stocks, gold, oil, and even regional banks all came down, as we said. 📉 

If you made a few thousand dollars this week, congratulations, if you didn’t, then don’t worry we have much more where that came from.

Recent shocks are just the tip of the iceberg, as the commercial dealers (the ones that control the inventory) are now building up a large long position in the $VIX.

There are also a lot more positions that point to a potential market downturn, but more on that in another post.

For now, I want you to focus on Value and safety.

You can do this through a few ways, all of which we’ve pitched in previous posts, such as:

• Manufacturing stock picks, given in this post right here.

• Energy stocks, also given out in this post.

• Overseas stocks with a preference for China.

And now, for those who enjoyed the rally in Nike stock, there’s a whole ETF for you to tap into the potential upside that’s coming from the rest of all value stocks in the market today. 📈 

Check it out, this is the spread between the $IVE ETF (value stocks) and the $IVW ETF (growth stocks) adjusted for their betas to the S&P 500.

This means that value stocks are now at a major divergence from the business cycle median, making them a potential buy today. To take advantage of this, go long $IVE and short $IVW. ✅ 

That matters because the spread has also become positively correlated to oil prices, which, as you know from our last post, means there is potential recessionary pressure.

You can see exactly what we mean in this chart above, especially as oil is typically the mirror image of this spread, driven by the fact that value stocks tend to do well when the economy is not that well.

The takeaway here is that as manufacturing makes a comeback in the United States, value stocks and oil stocks will likely join.

In case you don’t know why you’re subscribed, that’s why. We connect the dots so that you don’t have to. 🤝 

TRADE OF THE WEEK
It’s Football, not Soccer

We don’t typically trade Forex, but when we do we try to go for the big fish. Last time we pitched you a Forex trade was the USD/JPY at 160-162. 🎯 

Guess what, it got down below 150, and even though it’s back after FOMC, we’re still short that trade.

Anyways, today we’re giving you something special again in the Forex world, one that ties directly to the stock pitches in value/energy/manufacturing we just broke down.

Let’s break it down from top to bottom alright? ⬇️ 

When we choose global macro trades like these, we have to start from the very top of the economic trends from the two currencies, so let’s do that.

In a nutshell, the United States manufacturing PMI has been contracting for over 25 months as you can see above, and the only way the sector can come out of this slump is if the dollar index comes down. 💵 

Why?

A lower dollar will give foreign buyers additional buying power to buy our exports, which will in turn boost production and jobs etc.

Then, there’s the whole debt issue, as the national debt is now at $36 trillion and growing. But, the problem is not the level of debt itself, but actually how much interest the government is paying on that debt.

$1.1 trillion, which as you can see is now more than the defense budget. Now, being the history students that we are, we know that nations follow two paths whenever they get this much in debt:

1. National Supremacy: Where domestic production and leadership takes over to make other nations more interested in the currency and its perceived demand/safety. That’s why we also pitched you Intel stock last week

2. Currency Devaluation: When currencies get devalued, so does the nation’s debt and interest payments, and this is where the second leg of a long in EUR/USD comes in.

Now let’s look at - what we think - is the most important convergence in European economic data today:

You have one metric for Europe’s demand and supply imbalances, in red, called capacity utilization.

Notice that it is at a recessionary level of 77% right now, but just like in the US, Europe is cutting interest rates, which might start to boost tourism and domestic demand.

Then, in blue, you have imports, which are on the rise as domestic demand cycles are on the rise now, which might start the need to boost these imports further.

However, in order to do this, the Euro needs to be stronger relative to other currencies in order for Europe to buy enough of what it needs in the coming quarters and months.

We saw the exact same opposite setup when I was at Goldman Sachs and ended up shorting the Euro at $1.245 down to $1.05, 2,000 pips baby. 🔥 

Now, we have you on the upside, and this is where the 4:1 nature of this long EUR/USD trade comes in.

Now let’s give you the technical setup in this trade, which is completely different from anything you’ve seen in the typical Forex furu space. 📈 

As you can see, when we decided to short the Euro for over 2,000 pips, we spotted the opportunity in the changing volatility regime, and the spike in volatility (and its subsequent contraction) also made us exit the trade.

The same is happening today. Volatility regimes have bottomed, then popped up, and now seem to have topped as well, leading us into a potential buy.

Now, as some of the Twitter activity shows, it might be early to start buying, but we’re okay with that.

Why?

Because our worst case here is $0.95, while our price target is back to that $1.245 level, making it a 2:1 trade setup even at its worst. Still, from today’s entry, it is a 4:1.

As long as you load your portfolio up with these sort of trades, you’ll make a lot of money in the long-run.

Good luck. 🫰 

NOW GO AND MAKE IT HAPPEN
Know Where You Stand

Trading regimes and volatility is the key to timing your potential trade ideas, on top of the setups in the market/volume profiles as well.

That is where today’s book recommendation 📖 comes into play, it will teach you what to look for and what to keep an eye out for as far as risk and changing regimes.

To your success,

G. 🥃