🗞 A Horse Economy

WHILE YOU POUR THE JOE… ☕️
Seeking Deep

Well, congratulations to all of you who followed our trades from the ATR breakdown post; you made a killing on Monday’s selloff coming out of the whole DeepSeek and Nvidia debacle.

While some will wait until the true information out of China is confirmed, we decided to go one step further and bring you the real juice of the market. 👀 

But before we get to that, make sure you’re signed up to receive your free copy of our PMI report Excel model and PDF Guide. I credit 80% of our Monday gains on that sheet.

Speaking of a market selloff, let’s get on with today’s email 📧…

SENTIMENT & OTHER GAUGES
Why the Long Face?

Look at this beautiful double-bottom, and it’s not only a technical pattern, but actually a mathematical one.

Let me explain…

This is the spread between $IVE / $IVW (Value vs Growth stocks). As you can see, value stocks have now underperformed growth names by the largest spread since early 2022. 📅 

What this means is that the market is potentially overextended, betting on further aggressive EPS growth, but only this time, the economy shows no signs of that being the case.

Here’s a post to show you why we’re going into recession, not inflation.

So, I want to talk about that recent spike all the way to the right, which came about when the S&P 500 and NASDAQ sold off hard during that DeepSeek middle finger to our tech stocks. 📉 

You have the spread in orange and crude oil in white. Notice that this event triggered a “Flight to safety” behavior, rushing capital into value stocks and bonds and away from oil and dollars.

This should tell you a couple of things:

1. The market is actually pessimistic about the real economy, and I guess we’ll find out tomorrow when GDP comes out. 👀 

2. Systematic managers are dying to see a bond rally and $IVE take over. 📈 

Here’s how this spread did against the S&P during the periods we’re talking about, so that you can screenshot this and keep next to your screen every time you think we’re going into inflation and a new bull run:

To end 2021, the spread in $IVE / $IVW reached the bottom we are sitting on today again, and you can see as we’ve circled for you, how the S&P 500 began its 10-month decline after that. 📉 

Then, when the spread topped, triggering a new narrative for a growth stock rally, the S&P 500 also began its own breakout.

WIth that in mind, you should consider long $IVE and some protective puts on NASDAQ 100 ETFs, it’ll be a hell of a trade. 🔥 

TRADE OF THE WEEK
Happy New (Chinese) Year

Ben, if you’re reading this, it’s time.

We’ve been holding Alibaba stock since 2022 and have accumulated a 1,800 share position in this baby at an average cost of $74.75. ⌛️ 

Our price targets? Insanely good, but here’s why:

• This DeepSeek thing will only drive more attention to the Chinese computing industry, where Alibaba dominates as one of the largest cloud computing names.

• With Data centers across Asia and some areas of the Middle East, a DeepSeek partnership would be perfect. It’s like if Amazon partnered with ChatGPT; it makes all the sense in the world.

More than that, you have all of this new stimulus yet to trickle down to the consumer level, where Alibaba will be first in line to collect a big payout. 💰️ 

If you’ve been with us for a while, then you understand this is one of our favorite patterns in the market/volume profile.

This shows us that Alibaba stock had been accumulated for over 85% of all of 2024, with some high flyers like Michael Burry, David Tepper, and even George Soros jumping in to buy this name.

Ever time we’ve given you a stock with this pattern, a sure breakout follows shortly after. In this case, it is not only the technicals but also the fundamentals that make sense. 🎯 

Speaking of fundamentals, here’s our DCF valuation:

$212 on a worst case scenario, which means that Alibaba sales won’t grow past Chinese long-run GDP of 4.0%, which itself is also a sort of bearish case for the economy.

Do the math; that’s over a two-bagger on your money and an insane return on our cost basis as well.

I have a feeling the InvestiBrew team is going to bring you some Alibaba content straight from China later this year… 🌏️ 

NOW GO AND MAKE IT HAPPEN
Only Getting Started

When it comes to China’s time to shine, we think that the new wave is only getting started, a theme that Ray Dalio, Jim Rogers, and even Elon Musk agree on.

For you, this means a wealth creation event like none other, as long as you’re early into Asian markets, which is where today’s book recommendation 📖 can help you with confidence boosts.

To your success,

G. 🥃