Aha! moments often occur when we are faced with a problem or a situation that requires us to think outside the box. They can happen when we are struggling to find a solution to a problem, and suddenly, a new idea pops into our heads.
Think about the story of Archimedes, who had an Aha! moment when he saw the water in his bathtub overflow. Suddenly, he realized that the volume of an object can be measured by the amount of water it displaces.
Another example of an Aha! moment is when we finally understand a concept that we have been struggling with for a long time. It can be a concept in mathematics, science, or even in our personal lives. For me, they often happen in my world of trading.
In fact, I would argue that a career spent engaged in trading the markets by definition is a career defined by hops from one Aha! moment to the next.
Today's most significant insider transaction report is a Form 4 filing by Ares Management, which revealed a purchase of roughly $26.4 million in Frontier Communications Parent $FYBR.
The hedge fund now owns 36 million shares, which represents an ownership stake of 14.3%.
As many of you know, something we've been working on internally is using various bottom-up tools and scans to complement our top-down approach. It's really been working for us!
One way we're doing this is by identifying the strongest growth stocks as they climb the market-cap ladder from small- to mid- to large- and, ultimately, to mega-cap status (over $200B).
Once they graduate from small-cap to mid-cap status (over $2B), they come on our radar. Likewise, when they surpass the roughly $30B mark, they roll off our list.
But the scan doesn't just end there.
We only want to look at the strongest growth industries in the market, as that is typically where these potential 50-baggers come from.
[9/7: updated stop to 48. We're already #FreeRiding here, so whatever we sell the remaining portion of the position for is pure profit!]
According to "the news," Americans can't afford to buy homes and rising mortgage costs will only deepen the problem.
Cool story, bro.
Do you know what disagrees? The price of virtually every publicly traded homebuilding company. We're already long Lennar and Toll Brothers which continue to work for us.
Next up is KB Homes $KBH, which appears to be on the verge of a big breakout following a welcome response to its recent earnings report.
Check out the chart of Canadian dollar futures with the Commitment of Traders Report (COT) in the lower pane (red line for commercials, black for large speculators, and gray for small speculators):
Commercials hold their largest net-long position since early 2019. Extreme positioning such as this tends to mark key inflection points.
Why?
Because commercial hedgers represent the largest short sellers for any given market. And strong hands move markets.
You're seeing the permabears pointing to the Equally-weighted S&P500 falling down towards new 52-week lows relative to the Market-cap weighted version.
