🗞 Powell's Dilemma

WHILE YOU POUR THE JOE… ☕️
Cool Your Jets

Why is everyone still stuck on the Superbowl? Bread and circus my friend…

What they should be worried about is what the recent Fed comments have to say about the future of the economy, which is between a rock and a hard place right now.

You see, the Fed is never proactive with policy, always reactive. So, looking back at the aggressive cuts they made in 2024, to then pause, we think that this might be the last inning before they choose to keep cutting again. 📉 

And it has to do with this week’s data coming out on business and consumer inflation, especially this morning’s CPI number.

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

WAITING FOR THE FLASH
Markets Lead, the Fed Waits

Did you see how Zillow stock just flopped after earnings last night?

Well, we were kind of expecting that to happen, and at the risk of sounding repetitive, it is something that we broke down fully in our YouTube video from Monday.

So if you haven’t, go and watch it after you finish reading this post. 🎥 

Back to Zillow and inflation now.

Because we spotted an inherent weakness in the homebuilders as per our presentation, we are not confident on anything that has to do with housing and residential markets right now. 📉 

Which would lead us to believe that both consumer inflation, and business inflation in this sector is slowing down, or at least soon to be slowing down.

You can see it in the mortgage market index today, which hovers at a 1996 low right now, meaning the mortgage market is pretty much dead. 💀 

That is also why we decided to go short on SoFi stock near the $18 mark as we pitched not too long ago, simultaneously going long in Rocket Companies as a hedge. Needless to say, both legs of that trade are in profit. 💰️ 

Now I’m writing this up on Tuesday night, so forgive me if I’m wrong, but I do expect CPI readings to be a little cooler tomorrow morning, and here’s why:

This is the prices measure for the services PMI index, which is still on the hotter end, but has significantly slowed down.

Since this sector is the one that drives most of the consumer inflation in the United States economy, we think it matters most when trying to figure out the next round of CPI.

For the business sector, PPI and the manufacturing PMI price segments are more important, but more on that later. 👀 

For now, check out the industries that ended up pushing more inflation for the past month: ⬇️ 

Looks like it’s all tied to the holiday season bottlenecks, if not some SuperBowl action here.

Anyway, I don’t think this is going to be a concern for CPI nor the Fed in the coming months, especially as we see Zillow and homebuilders starting to flop already. 📉 

Now, this is the price gauge for manufacturing, which is steadily starting to expand quicker, not a serious concern, especially as we transition into the domestic supply chain and capacity with tariffs rolling around.

What would be a concern is PPI readings tomorrow or retail sales data on Friday if we start to see tighter pricing for durable goods and food/energy, along with less consumer spending on necessities (ex., discretionary). 🔎 

Then I think we’re in for a potential $SPX selloff down to $6050-$6020 to retest some lows.

Otherwise, as we said in our Twitter account, markets could attempt a new all-time high after this week and then climax on or after Nvidia earnings, which is a coinflip after all the big tech flops. 🤷‍♂️ 

TRADE OF THE WEEK
Mining Profits

This is the bread and butter of our profitable trade ideas during earnings season, as you can see in the Albemarle stock market/volume profile above, today’s levels show a volume cutoff. 👍️ 

Now here’s what I mean by cutoff, there is no volume at these levels, in other words no interest for the stock to trade at these levels.

With this in mind, there could be a sharp rebound into a more liquid level, especially if more institutional interest comes in the scene and tries to move a large block of shares.

This is something that cannot be done in these low liquidity / low volume levels, and that leads us to the next point.

The VPOC (red bar) is where the volume probably will pick up, and that’s the initial price target we’re looking for as far as a magnet goes, which is the $95-$96 area. 🎯 

Now that doesn’t mean we’re looking to sell there, if anything, we want to push to the next cutoff which would end up getting us to $100-$105.

As always, it looks like Wall Street analysts are also on the same page, but you’re subscribed because you’re used to getting more than this brief of a breakdown.

So, here it goes:

• Albemarle is in the lithium mining space, which has taken a hit as the EV interest has fallen.

We think this could change when oil prices go on the rise, which have historically increased the need for consumers and businesses to look for alternative, more accessible sources of energy. 🛢️ 

With this in mind, here is another point we like about Albemarle’s exposure to this EV wave on higher oil:

• It holds the most market share in United States lithium mining (Nevada), and over a third of its sales come from China, which also grew by 34% over the past quarter. 🔥 

Now looking at the bar chart, we are not only at the equivalent of what we saw in the market/volume profile as far as cutoffs, but we also have an immediate catalyst coming today 👀 .

Earnings after the bell could bring us into a potential pop to the VPOC if not close to it, that’s 25.5% upsdie from here by the way.

What we want to see out of earnings is not only decent results, but more importantly guidance from management moving forward when it comes to international lithium demand. 🫰 

GO AND MAKE IT HAPPEN
What’s a VPOC?

You might be wondering this as well after reading the pitch on Albemarle. If you are, then today’s book recommendation 📖 will be perfect for you.

It’s one of the few books that actually helped me understand what a market profile is and how order actually works in your favor, as long as you know how to read it properly.

To your success,

G. 🥃