🗞 Can You Read This?

WHILE YOU POUR THE JOE… ☕️
Willy Wonka

Did you know that Goldman Sachs traders make money 97% of the time? 👀 

No it’s not clickbait, they actually do, but it’s not from what you think.

These guys take the most boring of databases, like PMI and inflation data, and make it fun, as long as you call coming up with dozens of trade ideas fun.

That's why we chose to spend Friday night watching how our next YouTube video 📽️ will do. It will be focused on breaking down the latest Manufacturing PMI index and determining what to buy.

Also, as a thank you for subscribing to our newsletter, you will receive a link to download a free Excel model & PDF guide so you can follow along the breakdown and come up with your own conclusion.

See you there 👀 

Speaking of making things fun, let’s get on with today’s email 📧…

ENCRYPTED MESSAGES
Understand the Competition

This is something most traders should be familiar with, the chart you are looking at is the volatility index (VIX), which essentially measures the 12-month volatility expectations for the S&P 500.

But

What most don’t realize is that each individual stock and asset has it’s own measure of a VIX, though this one is more a measure of statistics more than implied options volatility.

The point is that it still works, such as how we predicted a large move in Netflix pre-earnings this week, just like we have done plenty of times in the past.

What we’re talking about here is the average true range (ATR) measure, which we use constantly to time some of our market entries and exits. 👀 

Let me give you an example:

We told Mike here that the volume and ATR analysis for $TLT bonds were setting us up for an up day, as volatility had risen to the highest level in a month and was giving wind of a contraction.

** Quick tip 💡: Usually, volatility contractions mean lower risk profiles and therefore rallies in the price, vice versa for volatility expansions.

In this fashion, you can measure the daily volatility and volume for any financial asset and determine the following price action.

That being said, let us go over a few examples for you to judge our performance with. Let’s get to bonds first since this week (it is Wednesday night right now) we have jobless claims + BOJ decision coming up.

This is what the ATR looks like for $TLT over the past five days, notice how we had the contraction as we rallied during the time we said to Mike that bonds would rally. 📈 

Now that the rally is gone, ATR has reached the low levels of 0.6% to 0.8% range, meaning we’re about to see a good pump in volatility.

Makes sense, as we have those two catalysts coming right up, now the question becomes whether this big move will be to the upside or downside. 🤷‍♂️ 

We can tell you right now, but for time’s sake, we suggest you read this post about it.

This is what the Dollar looks like right now, also a severe compression in volatility leading up to a potential expansion, which way will it go remains the subject of the post we have linked above as well.

Keep in mind that jobless claims and the Bank of Japan (BOJ) decision this week will sway the dollar through a big move. 💥 

Of course this is only half the picture, by understanding when volatility tops and bottoms compared to historical averages, you can then time your trade according to your own fundamental + technical levels.

It’s how traders did it when I worked at Goldman from 2021 to 2023, so you bet this is gold-level information.

By the way, if you are interested in getting a simplified Excel model for this method, as well as a quick guide on how to use it, don’t hesitate to send us an email to:

[email protected]

We’d be happy to get you set up there ! 🫰 

TRADE OF THE WEEK
Carnaval

That’s not the only thing Brazil will celebrate this quarter, but rather the huge oil buy orders coming out of China. 🥳 

If you read our thesis on why oil is set to soar, right along with stocks like Transocean as our best pick, then you know exactly what we’re talking about.

China’s manufacturing is expanding, while the US is looking to breakout as well, this accounts for over 65% of the world’s oil demand, which is going to be a good thing for prices.

This is where Petrobras stock comes into play, not only as an oil play but also one with some of the best tailwinds in the industry. 📈 

Let me explain what I mean:

1. It is a foreign stock, exposed to the dollar decline view we have, so automatic rally on valuation exchange.

2. Brazil is China’s go-to market for steel, iron, and oil right now, and $PBR is the largest exporter.

3. It’s very cheap.

Remember that Brazil has been implementing billions of dollars worth of stock buybacks, as the new Lula leadership creates some uncertainty in the business landscape. 💰️ 

This way, companies think that capital is better put to use by reinvesting back into the businesses.

This makes all the sense in the world for Petrobras, at 5.3x P/E and 22% return on invested capital (ROIC). 🔥 

You know what else makes all the sense in the world? The market/volume profile setup on the stock.

It looks like we’re at the 2024 volume cutoff. The stock has also begun to bottom out, giving us a whiff of what could come this year.

Now, intrinsically, our DCF models say this stock should be worth over $22-$25 a share, but we’ll settle for the upper range of the 2024 distribution at roughly $17.50. 🎯 

By the way, Wall Street analysts seem to agree again. ✅ 

NOW GO AND MAKE IT HAPPEN
Never Fails

Keynes is the founder of the Keynesian economics model, but that’s not what he was mostly famous for back in his day. He started what was essentially the first global macro hedge fund.

Which is what Ray Dalio took and built to become the largest hedge fund in the world, so it speaks to the strategy’s success and why we copy it.

Today’s book recommendation 📖 might help you get started on it too.

To your success,

G. 🥃