🗞 I'm Confused

WHILE YOU POUR THE JOE… ☕️
Look Ma! 10%

So this time, there doesn’t seem to be any turning back when it comes to tariffs on China.

I still remember it like it was yesterday, 2018, tariff war on Twitter nearly every day coming from Trump, S&P 500 swinging like a drunken sailor.

Well, we’re back to those days, only better prepared and equipped with all the right tools to trade this crazy environment. 🔥 

So thank you for being here, it reminds me that there are still people with a sense of what works and what doesn’t out there.

Speaking of what doesn’t work, let’s get on with today’s email 📧…

RISK COVERING TIME
Got My Back?

If you’ve been with us for a while, then you know what this chart means already, it’s the equity risk premiums (in white) next to the $SPY ETF (in orange).

Their recent divergence seems to be closing down as you can see, meaning that the market is finally reflecting the higher levels of risk implied by these premiums.

However. 👀 

These premiums have bottomed recently, specifically after the $NVDA earnings announcement. It’s as if everyone was having a big scare before the release and now everyone’s just calmed down a bit.

Which is great news, but you also have this new dynamic popping up: ⬇️ 

In orange you have the $IVE / $IVW spreads (value vs growth), notice that as the S&P 500 sells off this spread spikes, which makes sense since people seek the safety and low volatility of value stocks here.

That also means the economy might be going into recession, hence the defensive names interest. 📉 

In white you have crude oil futures, another gauge of economic activity and outlooks.

What interests me is the top in the $IVE / $IVW spreads and the rally we had in oil yesterday, which came along a bottoming in those risk premiums we talked about.

All of which should have been a net bullish effect for the S&P 500, yet it kept selling off even more. 🤷‍♂️ 

So which is it? I’m kind of confused here..

One last check to see if I can make sense of it. The white represents the dollar index 💵, while orange is the $TLT bond ETF, and if you read this post on our previous macro update, you’ll see that we called for a dollar selloff along a bond rally.

Well, we’re getting it.

But.

$TLT also slowed down its rally, while the dollar decided to pop off along with oil yesterday. 📈 

Again, also bullish for stocks and away from the recession theme that is overtaking the macro image.

So, two things on the S&P 500 futures.

Maybe this dynamic away from the recession theme (price action wise) is a warning that a reversal is coming in.

However, I wouldn’t start to be a buyer until we get to this low-volume area of $5850-$5830 on S&P 500 futures. 🎯 

This is where new buyers could come in as a reaction to the index being too low for its own good on the short-term, and also a great potential pivot area if these risk premiums and other markets keep acting the way they’re acting right now. 👀 

With that being said, I would watch these markets very closely in case of any major shift, as well as that key level on futures.

No reaction buyers there could signal we have another big selloff coming our way. 📉 

TRADE OF THE WEEK
Up to 4 Passengers

That’s how many the Archer Aviation Midnight aircraft can fit, plus luggage.

Now I am not a big fan of investing in pre-revenue companies, as their production ramp and regulatory process can be a major risk to the stock’s price. 💆‍♂️ 

But get this.

There’s $6+ billion in order backlog for Archer Aviation and its products pending from three major markets:

• New York

• Japan

• UAE

Notice something in these three areas? They all can be defined as dense metropolitan settings, where ground transportation is becoming impossible to deal with.

The solution? Sci-fi made real. 👽️ 

Air travel is going to be a sensible option for those who have access to it in these demographic areas, and I think that’s where $ACHR comes into play.

Now I’ve highlighted a few of the points that stood out to me in their latest quarterly presentation, but the optimism doesn’t stop there.

While it is true, there are many pending risks in this business and a lot of financial homework (due diligence) to be done in this name, there are also plenty of factors that work in its favor.

From the macro, to the micro. ⬇️ 

Which is why you’ve got the big wick coming in around the $7.75 area for the stock, implying aggressive buying activity reacting to the dip.

Combine that with $436 million of institutional capital flowing from the last quarter as new buyers and you’ve got yourself a pretty bullish setup in the making.

As long as you can get behind the story for this product, this reaction says it all. 🫰 

GO AND MAKE IT HAPPEN
No Angels on Wall Street

Investing in young and aspiring companies, like $ACHR is an art, and I’m not going to say I’m an expert at it, so I’ll just point you to one.

In today’s book recommendation 📖, Peter Thiel (known venture and angel investor) talks about finding these companies when they’re in their early stages.

The guy spotted Facebook before it was Facebook, so he’s got some authority in this.

To your success,

G. 🥃