🗞 Casino Royale

WHILE YOU POUR THE JOE… ☕️
Willy Wonka

Do you ever come to the market and find yourself lacking inspiration? I mean, nothing seems to make sense, and you’re just starting at charts trying to come up with an idea. 💡 

Well, that’s not what the pros do at investment banks and hedge funds. They have a systematic process that allows them always to have dozens of ideas in a pipeline, just waiting to be executed.

And that’s what being a subscriber will get you, my friend. This Friday, January 24th, we will walk you through breaking down the manufacturing PMI index, which (along with services PMI) is responsible for 85% of our trade ideas. 🧠 

So make sure you’re subscribed to our YouTube channel, and be on the lookout Friday morning, as you will receive your very own copy of our proprietary Excel model and PDF guide.

See you there 👀 

Speaking of generating ideas, let’s get on with today’s email 📧…

CASHING OUT
Royal Flush, Pot is Gone

What you’re looking at here is the cost of leverage, which is also tied to its demand. You see, leverage in the market can be also an implication of how much conviction and momentum there is in the S&P 500 and NASDAQ 100. 📉 

If you read our last post on why Buffett has gone to a record cash position, then you understand that possibly this momentum and conviction has slowed down enough to spook buyers into cashing in their chips and locking profits. 💵 

It seems that there are other players in the market also deleveraging out of equities in recent months, here’s what we mean:

This is the commitment of traders report, which measures the inventory levels for futures contracts in different asset classes.

The image above is the S&P 500 futures inventory, and there are two balances we want you to focus on:

• Green: These are the non-commercial players, the institutions, and the large speculators. They usually chase momentum in the market and are late reacting to shifting tides.

• Red: Commercials, the big banks, and prime brokers who typically oppose institutions are usually early indicators of the underlying sentiment.

So, as you can see here, institutions are beginning to unload some of their inventory as the S&P 500 seems to have topped as of December 4 🎯. On the other hand, commercials are now as short as they’ve been since 2007.

This convergence to the downside on both ends, as well as the drop in the cost of leverage, likely means that the broader market is experiencing a systematic decline. 📉 

Another image that started floating around Twitter recently is money market funds and their insane balance increase in the past couple of quarters.

While it doesn’t necessarily mean “Cash on the sidelines”, it does mean that there is a lot less money chasing the same amount of assets that it once was.

And that aligns perfectly with the rotation that’s coming into the bond market, as we’ve broken down in our previous post on the bond markets. 🫰 

TRADE OF THE WEEK
Priced In?

This week, earnings season is going in full swing for the biggest airline names in the industry. ✈️ 

Now, even though there are reasons to stay bullish on airlines, the bearish reasons far outweigh them, in our opinion. Sure, the TSA numbers show strong travel trends, and the transportation industry showed a breakout in the PMIs.

The price action for airports and airlines has been very bullish since the S&P 500 stagnated in December.

However

We think that all of that is priced in right now, and with the potential dollar selloff (already taking place during Trump’s inauguration speech), as well as oil prices going higher to $85-$90 🛢️, which by the way we gave you the best energy name we could find in this post.

It all mixes up to bring us a potential selloff during United Airlines’ earnings. Now these would have been out last night as we are writing this Monday afternoon, but don’t worry, you’d have gotten it in our Twitter & LinkedIn.

Anyway, here’s what we see for United specifically:

Notice how the spreads are set up for peers. Jetblue stock commands the leading EPS growth for 2026 🔥 and, therefore, the most premium in forward P/E terms (column PE2).

Most importantly, its PEG ratio based on 2026 data shows a 0.2x multiple to be well below the industry average. 📉 

Now, United Airlines seems to be a bit overextended in comparison, as its 97% of 52-week highs can’t really be justified by a 9.5% EPS growth forecast vs Jetblue’s 147% or the industry average of 16.4%.

Therefore, the market is right to discount the stock’s forward P/E down to 8.3x compared to Jetblue’s premium of 36.4x 📈. All told, you can land on this extension by looking at United's PEG ratio of 0.9x, near double the industry average today.

This is how the volume/market profile is set up for United stock. Notice that there was nearly no volume toward the highs in 2024, and there hasn’t been that much in 2025 either.

To us, this means a potential distribution phase for the stock, and we find it potentially dangerous at the $108 a share level and above, especially as these bullish factors may already be priced in. 👀 

This is why we’ve specifically set our short entries to $108 and above for the market open, as you can see there is a clear volume cutoff in that area as well. 🎯 

Then, you can note another gauge through recent institutional buying and selling activity.

As of the first quarter of 2025, there has been a net outflow of capital from United stock, so we guess that, yes, it has all been priced in.

Short interest has also been on the rise, signaling bearish interest tagging along for this bearish thesis. 🫰 

NOW GO AND MAKE IT HAPPEN
We’re Getting Picky

Now that the market is potentially about to become a lot cheaper, we figured we’d give you a primer on value investing since getting picky in your stock picks moving forward will pay MASSIVE dividends in the years to come.

So, in today’s book recommendation 📖, we’re giving you a full education on how to be an effective value investor during this cycle.

To your success,

G. 🥃