🗞 With Me Or Against Me?

WHILE YOU POUR THE JOE… ☕️
Mama Wood is Back At It

ARK Innovation ETF was a flop. 📉 

Still is, but Cathie Wood decided that this sudden risk-on week we saw recently was enough justification for her to plunge up to $80 million into Bitcoin, and then another $5.2 million into Coinbase stock. 🪙 

I don’t know, seems like one of those YOLO plays where she’s looking to get the fund above the S&P 500 for the year and then call it a day again.

For you and me though, this means that maybe there’ll be one more run for the gamblers out there.

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

CAN’T HANDLE THE TRUTH
Not Your Father’s Stock Market

Retail sales, consumer sentiment, consumer spending, personal savings.

It’s all pulling back, yet these inflation expectations are through the roof, how does that make any sense to anyone out there? 👀 

The truth is, most people out there aren’t even looking at this stuff, and even if they are, they don’t understand what’s coming across to them.

Our people do, which is why we’re going to be taking money out of the pockets of those who don’t, after all this is a zero-sum game. 💵 

Let’s get a primer on how a professional trader at an investment bank or hedge fund would generate a view on this diverging data.

Above we have the ratio between $IVE / $IVW (value vs growth stocks).

The premise of tracking such two ETFs is as follows:

• A falling ratio means growth is outperforming, so think tech and other such areas, bringing us to a “Risk-on” market.

• A rising ratio means value stocks are outperforming, think defensive areas like real estate, manufacturing, utilities. Essentially a “Risk-off” market.

By the way we made an entire newsletter dedicated to breaking down what “Risk-on” and “Risk-off” actually means and how you can track it yourself. ✅ 

Now let’s see the S&P 500’s role in this spread:

Notice a couple of things as we overlay the $SPY ETF on top of this ratio of value vs growth:

• From 2020-2021 they were negatively correlated, bringing us a bull market in the S&P 500.

• Then in 2022-2024 a positive correlation gave us a channeling market with a few uncertainty bumps along the road.

• All of 2024 was a negative correlation again, giving us another bull market, but today correlations are swinging.

If you read our primer on Global Macro strategies, then you understand the importance of these correlation swings, it’s where most of the money is made.

Speaking of which, you can see how the current swing is to the positive end, with the smoother 2-year correlation starting to top and pivot.

As both the ratio and the S&P 500 started to come down, a negative correlation means one of them will have to recover, while the other one stays down or goes even lower.

Considering that data for consumers is worsening, and the real economy is feeling it too, I would say it is the $IVE / $IVW ratio that will recover, leaving the S&P 500 behind.

That’s your queue to look into value stocks, but keep in mind, they’re not all made equal ⬇️ 

TRADE OF THE WEEK
You Still Got Time

If you watched this YouTube video👆️ here, then you understand that we’re digging into the basic materials, manufacturing, and construction sectors for long ideas.

The reasoning goes hand in hand with what we just did with the ratios above and their correlations to the S&P 500.

By breaking down economic data, we landed on a pretty good idea in an overseas steelmaker:

Even though the stock is already up by 10% since we pitched it inside that YouTube video, Ternium stock is still a play for us today at this level.

This Brazilian steelmaker has its hands on both the American and Chinese market, both of which are now expanding on their infrastructure spending budgets, which will absolutely call for more steel imports. 🔥 

Despite the whole tariff talk being made today, American steel mills will likely be tapped out making all of the semiconductor and automotive materials needed on the trade route shifts, leaving heavy construction needs to imports.

And guess who is going to be doing a lot of that construction?

Semiconductor foundries, as you can see billions are already pouring into these projects, driving the potential demand for heavy construction higher for names like Ternium as we’ve discussed.

From the comps spread above, you can also see that Wall Street analysts expect a 22% EPS growth rate for 2026, way above the average of the rest of the industry, reiterating the potential breakout this stock could continue to have. 📈 

Based on some financial forecasting (which we won’t bore you with), and the market/volume profile for Ternium, we’ve landed on a target range for $38-$43 per share.

Which isn’t far from the Wall Street consensus for $42.2 today. 🫰 

GO AND MAKE IT HAPPEN
Spot The Trend

This week was awesome, we got about 27 new subscribers likely due to our callout of the S&P 500 bottom and 100-point rally on Twitter.

That being said, I think it’s time to bring back one of my favorite books.

Today’s book recommendation 📖 will show you that 85% of successful hedge fund managers and traders use - in one form or another - a global macro strategy on a daily basis.

You can too, after today’s resources above, you’re ahead of 99% of other retail traders.

To your success,

G. 🥃