Have you seen this chart floating around your favorite internet haunts?
It shows Ferrari’s (RACE) stock price – which has soared 122% since 2023 and now sits near all-time highs – against Dollar General’s (DG) stock, which, well, hasn’t done so good.
Now, Dollar General is often the only retailer for miles in rural areas.
We’ve got one in my town. I only go there when I have to, because it’s always overstocked and just makes me sad. But man, they’ve got some screaming deals!
DG got absolutely nailed on its most recent earnings. Same store sales were underwhelming, and guidance got cut.
But what’s making headlines is the warning from company leadership about a strapped consumer base.
I don’t buy that narrative. With the flow I’m seeing, the recessionary play will be more consumers “trading down” to lower brands. Buying ground beef instead of steak.
Besides – there’s another angle at play here that nobody’s talking about.
Remember: There’s a difference between the company and the stock. And Dollar General’s management are experts in both.
Here’s a look at their shares outstanding over the past decade:
This gets us closer to the real story. Half of DG’s success has been its operation.
The other half has to do with using debt as leverage to buy back stock. When rates are low, the game can keep running.
But when rates skyrocket from 1% to 5%, you get a “one-two punch” of a slowdown in the business operations, and the inability to prop up the stock with buybacks.
Here’s a look at their debt to equity:
Leverage, not the consumer, is what’s killing the stock.
Now consider the future. We know the Fed’s going to cut rates. That means DG will get access to cheaper credit, and if a recession does happen, their consumer base will expand and margins will improve.
We’re getting very close to a “back up the truck” moment on this stock… but I’ll be waiting for one key signal.
It’s the same signal that led us to a 157% gain on Viking Therapeutics, 728% on a Disney trade, and a recent 1,300% gain on a trade in Zumiez (ZUMZ).
We’ve put together a free training that shows you exactly what this signal is, how it works, and three stocks showing the signal right now…
You can watch it free on this page here.
Gold is having a standout year.
The yellow metal is up more than 21% on the year, and touched a new record high of $2,531 per ounce in late August.
The flip side is, large gold miners have not seen a commensurate rise.
A few reasons for this is the margin pressure from inflation makes it more expensive to pull gold out of the ground. You’ve also had labor constraints baked into that inflation as well.
There’s also a loose relationship between the current interest rates set by the Fed and the price of gold. There have been three other times the Fed has cut rates in the history of modern markets:
If gold really gets going and starts a parabolic move, then the gold miners will start playing catchup as their financial projections improve – and a flood of speculative liquidity comes pouring into the space.
Barrick Gold (ABX) is one of the largest gold producers with a market cap of $48 billion. While it can be a great trader, you’re not going to get massive upside from its current prices – it’s simply too big and well covered.
We don’t typically see a ton of insider buying in the precious metals space. The executives are already well compensated in cash and equity, and they tend to be net sellers.
But I have found one with a history of insider buying.
The twist is that it’s an exploration company, meaning they haven’t fully proven out their reserves. So it’s a speculative play… but I believe the upside is well worth it.
The company has had a healthy appetite for insider buying ever since the stock was listed on the NYSE:
It’s been using equity financing to fund operations, which has been diluting the stock. This past year, they tapped their ATM offering capacity, as well as a Registered Direct Offering.
Yet we continue to see insider buying into that dilution.
The largest shareholder, a co-chairman, bought three times in February for a total of $65,000. That was a drop in the bucket, and doesn’t exactly signal conviction.
Same with the COO, who made a minor purchase toward the beginning of the year.
But what really perks my ears is the VP of Exploration. Back in June, he bought 20,000 shares for a total cost of $50,000. That’s a sizeable amount given the size of the company and how speculative it is.
In other words… the insider who’s the expert in exploration just put on a big conviction buy.
If the company announces a find, coupled with gold hitting all-time highs, coupled with the liquidity flood we could see in gold miners as they play catchup… then you’ve got multiple catalysts on a company that no one is paying attention to.
I’ve already sent the full trade information to my paid members, including the ticker symbol, buy price, stop loss, and upside target.
So if you’d like to learn more about how we follow these insiders to under-the-radar stock opportunities – and see three more stocks we’re tracking right now – click here to watch our free training video.
What was to be an eight-day trip turned into a months-long ordeal.
The Boeing Starliner is the vessel that got Butch Wilmore and Suni Williams to the International Space Station (ISS). I’m sure it was hyped up by the company as the next big thing.
Now, the astronauts are stuck in space because the Starliner is malfunctioning. Experts give them a one in 270 chance of surviving reentry on that vessel, which is not the kind of odd I would want to take.
The only other option would be to ring up Elon Musk, but that would cause Boeing and their counterparts in the Federal Government a massive amount of embarrassment.
In the 1990s, there were over 50 “prime” contractors for the Department of Defense. Since then, they’ve consolidated into five giant companies: Lockheed, Raytheon, Boeing, General Dynamics, and Northrop.
These massive companies are old, slow, sclerotic, and are starting to represent a risk to the interests of the U.S. government.
Like, how we want to go to space… but Boeing makes a spaceship that’s a national embarrassment.
Luckily, competition is on the way. The nature of war has dramatically shifted due to developments in the Russo-Ukranian war, and that is causing the Defense Department to panic a bit and change how procurement operates.
On the space side, there’s a handful of public companies that show promise.
AST SpaceMobile (ASTS) is a company that is developing cellular networks in space. Their stock recently went parabolic, running from $2 to $35 in just a few months.
Rocket Lab (RKLB) is another one. Guess what they build?
The stock just broke out the new highs with some serious momentum behind it.
But there’s another one I like even better:
This stock is emerging from a downtrend after being left for dead this year.
If it moves the way the others have then it’s a quick double, and then we’ll see if they can start catching some heat to the upside.
Space plays are interesting because while they are very capital intensive on the frontend, if you can get the satellites in space and offer a solid service, then your margins start to increase and you are then spinning out cash flow.
That’s what happened to this company. Their gross margins were negative in 2021, and now they’re sitting at over 50%.
What’s more is there were two significant insider purchases – one nearly a million dollars and the other at $270k.
These two insiders stand to make a serious return on their cash, and that’s why I think they put money into the stock.
By the way: This is 100% legal. And if you know how to navigate their signals, then you’ve got a solid investing framework. We’ve put together a free training that breaks it down step by step – and shows how we’ve used this framework to capture gains like 309%, 506%, and even 1,300% in just four months.
You can watch it completely free on this page here.
As it stands, the “stock market” is a very concentrated group of tech stocks with some banks sprinkled in.
Positioning is still extremely crowded, and the derivatives on these assets continue to drive the markets, showing that volatility is still cranked.
But there’s a group of stocks that could do exceptionally well as institutional capital rotates away from those mega-cap tech names – especially if the Fed is forced to cut faster than they expected, which appears to be increasingly likely.
The trick is to look for well-run, stable companies that have a ton of debt.
That debt is often a “floating rate” instrument, similar to an adjustable rate mortgage, and the rate is based on what the Fed sets.
When rates are at 1%, you’re doing great.
When rates are at 5%, you’re forced to use more of your cash flow to service your debt. That’s the price of leverage. But leverage runs both ways.
Take a stock like Lumen Technologies (LUMN).
I started getting bullish on LUMN in March, because when I dug into the company, their main problem was a debt millstone tied around their neck.
Then there was a drastic shift in expected Fed policy. The expected year-end rate fell from 4.75% to 4.25%.
That may not seem like a lot, but if you’re a highly leveraged company, that would be a massive relief. Your free cash flow could start seeing major improvements.
That’s what happened with LUMN:
They come out and report earnings with improved cashflow and a restructuring of their debt. If rates come down, their outlook significantly improves – and you get a squeeze in the stock.
It just went on a 530% run!
What gave it away for me all those months ago was that corporate leadership was so bullish on the stock, they started putting serious skin in th game.
The CEO put $950k into the stock in May. She’d previously picked up $970k worth of shares in November, right near the dead low of the stock.
There were also four other insiders buying during this time.
That’s exactly why I recommended it to our clients several months ago.
Right now, I’m monitoring three new opportunities that insiders are piling into…
Click here and I’ll tell you all about them.
In case you hadn’t seen the biggest revelation from Berkshire Hathaway’s latest quarterly filings:
Source: CNBC
Wall Street’s expectations were that the firm would dump around 100 million Apple (AAPL) shares. It ended up selling 400 million.
That’s impressive – nearly $88 billion dollars moved around, and nobody sniffed it out beforehand.
In a less liquid stock, if a large seller shows up, you’ll know about it thanks to the abnormal volume and the bid getting taken out of the stock.
The stock was averaging 50 million shares per day, and they managed to dump eight days’ worth of stock over 65 trading days.
I don’t know how they did it. Probably a combination of stock and derivatives, and working with the company for when their buyback program would be active.
You may think this is a massive sell signal for AAPL… but that isn’t the case. Having a large institutional sale like that doesn’t give us enough data to make a decision.
And even if you did, the news is coming out well after they’ve pared down their position. Heck, Berkshire may start buying if AAPL drops hard on news of them selling.
It’s how the game is played on Wall Street.
We’ve found data similar to the Berkshire sell that can give us key insights into which stocks are on the verge of moving next – click here to watch our free training video and see some of the specific opportunities we’re monitoring now.
There’s a lot going on in… and around… the financial markets right now.
We’ve got several major liquidity moves taking place as capital flows out of the Magnificent Seven…
Poor jobs data that triggered a highly reliable recession indicator…
Not to mention political and geopolitical narratives reaching fever pitch.
To explain exactly how we’re approaching this market and all the macro factors impacting it, I recorded an in-depth market primer for the week.
Take a look:
Watch this free training session for deeper understanding on these market guidestones and more.
See you inside.
We’ve already covered the first two inflation narratives (you can get up to speed on those right here if you missed them).
Now let’s talk about the third and fourth…
If you’re an employee at a large tech firm, things are still sailing smoothly for you.
Salaries are still high, there haven’t been a ton of layoffs, and you still get all your meals cooked for you at Google’s headquarters.
Of course, economic returns aren’t evenly distributed, and there’s plenty of disruptions along the way. It also doesn’t help that groceries are 25% more expensive than they were four years ago.
Put aside all the boomer macro takes for a moment… because while they do drive the primary narrative, we will most likely not see prices confirm the economic weakness.
This is a chart showing the Fed Funds rate and the S&P 500.
In 2000 and 2008, they waited too long to cut and it didn’t help things.
In 2018-2019, there were some signs of deteriorating economic conditions, starting with a nasty move in equities and credit in December 2018 that forced the Fed to be more accommodative in their actions.
Had COVID not hit in 2020, we probably would have had a proper recession, but the monetary and fiscal response truncated that move.
There are hundreds of stocks that simply haven’t moved while about seven stocks make up for the majority of gains and liquidity in the market.
Some of that is because you can get a 5% yield on US Treasurys, so you don’t have to take a bunch of risk in the equity markets to get a solid return.
If the Fed pulls back on rates, some of that math will change with respect to liquidity, bu you’ll also see an improvement in credit conditions.
A very good example right now is Rackspace Technology, ticker RXT, which is one of our model portfolio holdings right now.
They are a private equity spinoff, which means they have a ton of debt. That debt is at a floating rate, and it’s tied to the Fed Funds rate.
Some quick math tells me if the company has that debt exposure, they have to pay about $85 million just in interest payments when the Fed rate is at 0.5%.
But the Fed rate is at 5.25%… which means they have an interest rate payment of $117 million.
The Fed Fund Futures are currently pricing cuts that take the rate down to 4.75% as we head into the end of the year.
Assuming all else remains equal, this reduces the interest payout down to $113 million.
That doesn’t seem to move the needle a ton, but an extra $4 million can start to matter with respect to the flexibility of the firm.
This is one of the reasons smallcaps have been lagging for a few years. The cost of money is too high for these small firms and they can’t get good terms on debt rollovers. They can’t go finance in the equity markets as the lack of liquidity would tank the equity of the company.
If the Fed starts to cut, we will most likely see a hard rally in smallcaps, banks, and other names that have higher debt loads. We’re not talking fundamentals here, we’re talking narrative.
This is important! Because the economy will start feeling terrible in the real world, but there will be a disconnect in the markets as breadth starts to work more.
A quote from an article:
Just a handful of names have been pushing the gains on the indices much higher.
There has been a lack of breadth in this market. More and more capital and liquidity are crowding into the same names like Nvidia (NVDA) and Apple (AAPL).
This relationship can persist longer than you think. I remember noticing this back in 2017, and it took six months before the squeeze stopped.
Some of this can be blamed by passive indexing and how the indices are structured. That’s going to be a market-cap related squeeze.
There’s also a ton of options-related games going on. The liquidity on the straight equity sucks so much that the options market can push the market around on a string.
It’s not just zero-days-to-expiry options on the S&P 500 – it’s also the options markets in NVDA and the other large cap tech names.
This is a chart of COR10D, which shows us the implied correlation in the S&P 500 for 10 delta options.
I understand we’re getting into some advanced options witchcraft but if traders don’t understand these mechanics they probably shouldn’t be involved in the current markets.
If you have very high correlations, it means the market as a whole is moving on a big conveyor belt of risk. This usually happens when we have volatile markets as things are being bought and sold in large baskets.
Right now we are in a very low correlation market as it relates to OTM call options. This is usually in a solid bull market but the breadth is also low.
So what does all of that mean?
The crowd is crowded. They’re all in the same handful of stocks, and that could present a liquidity risk in the S&P 500 and Nasdaq, along with the largest components.
But here’s the thing– a reversion of this doesn’t mean a collapse in the market.
It means rotation.
At the time of this writing, NVDA has a market cap of 3.1 trillion dollars. That means a 1% move is the equivalent of $310 billion.
If that liquidity ended up being spread throughout the rest of the market, you would get a bull market where the laggards start to play catch up.
We are starting to see evidence of that. Here’s a daily chart of QQEW, which is the equal weight index for the Nasdaq 100:
Clean breakout. This isn’t bearish.
The same holds true for RSP, which is the equal weight S&P 500 index– a massive POC buildout up here and the possibility of a hard rally after that.
Here’s the basic thesis that I have for the second half of the year:
So what’s going to change?
The Fed has some decisions to make. And the vibe will shift during that time as price action starts to respond in a way I’ve described above.
More investors will be trying to chase trashier names with high debt loads as there’s anticipation that lower rates will mean easier money for these small/mid-cap companies.
And as all these play out, we’ll still be using our market roadmap to find high-potential, low-risk opportunities – click here and I’ll show you exactly how it works and what some of our past winners have looked like.
The biggest news for financial markets isn’t anything that’s going on with Trump or Biden.
It’s the concentration of institutional capital into just a few pockets of the market – specifically the Magnificent Seven, short strategies, and leveraged US Treasury holdings.
Nvidia’s (NVDA) market cap is over $3 trillion. Imagine that the stock sees a 5% pullback.
That’s $150 BILLION dollars, just from a “normal” pullback. That’s larger than the value of most of the companies in the S&P 500.
I am increasingly worried there could be a liquidity break in large-cap tech, but so far it’s been tame. And it can lead to bullish setups across the rest of the market.
What if some of the capital that’s been pushed into the Mag 7 goes hunting for other deals in the market?
Maybe some fund managers who are underperforming their benchmarks are going to try and hit the gas in the second half of the year…
It sure feels like it.
Like this setup in IGV, and ETF that tracks the software space:
It’s clear there’s institutional interest here. Many of the software names have not yet had their “AI moment,” as it takes a while for tech to move through larger companies. But it could be showing up soon in their earnings reports.
I found one that piqued my interest: ANSYS Inc., ticker symbol ANSS. Take a look:
I’m not going to pretend to have some unique insight into the company. It looks like some enterprise software firm.
The reason I’m following it is the yellow rectangle I’ve marked on that chart.
That’s what we call the “point of control.” It’s a critical price level for the stock – and it’s signaled some of the biggest wins we’ve ever recorded here at Market Traders Daily.
We put together a free training video that shows exactly how it works, step by step… you can watch it 100% free on this page here.
