The Trump Bull Market?

With the launch of HX Research over the last year, we have had the opportunity to meet many great financial authors.

One of our favorites is J.C. Parets of All-Star Charts.

In addition to being an all-around great guy and huge baseball fan, J.C. has some of the best insights out there into the markets. He approaches the markets from a technical perspective and is focused on WHAT WORKS.

He published a note last week about the recent price action in Donald Trump's social media company, Trump Media & Technology Group Corp. (NASDAQ: DJT).

The note highlights his approach's best attributes: its focus on what is really happening in the markets and tuning out the "noise" to make money.

We also encourage you to follow JC Parets on X/Twitter and sign up for his free newsletter.

The gist of the note is that DJT has had a massive run in the last few weeks—it has DOUBLED!

We don't know how familiar you are with the company, but it is controversial, to say the least.

Half the people are obviously angered by the Trump element, but we think even more investors are angered by the valuation.

The company has an almost $5 billion market capitalization but made just $836,000 in revenue in the most recent quarter. This is down from -30 % in the same quarter last year.

Putting this in perspective, this means that they are doing less than $4 million of annualized revenue, and it is going down—not up. An objective fundamental analyst would look at what the company is doing fundamentally and have little confidence that it is going to grow anytime soon.

This means that the company trades at an incredible 1,250 times REVENUE!

This is infuriating for traditional fundamental investors – especially those in the "value" camp. It shouldn’t even exist.

Trump is controversial, but the valuation violates the fundamental value investor worldview.

Yet—it does exist. The stock also just gave nimble investors a +100% return in just a few weeks.

This brings up one of our most important insights at HX Research – STOCKS ARE NOT COMPANIES.

We have said this many times, and it is probably the most difficult concept for most traders and investors to understand.

While – in theory – when you own a share of stock, you own a piece of the company, the reality is that this doesn't mean anything. It is not like you ever see the day-to-day cash flow of the business like you would if you owned a private business like a restaurant.

DJT is another example of this rule. Nothing stops the company from trading at 1,250 times revenue or even 12,500 times revenue.

In the short term, the enthusiasm of buyers and sellers will define the price of the stock.

Traders who bought the stock at $12 three weeks ago and sold it today for $24 are receiving real money, regardless of the company's valuation and what it is "supposed" to be trading at, according to traditionalists.

We are not saying you should trade a stock like DJT. However, for nimble traders who truly understand the markets, we think these kinds of stocks can produce a ton of profits. In our view, though, they are only for the most sophisticated traders.

J.C. makes another great point about DJT and the stock market that we agree with—this type of price action is BULLISH.

Some of you might point to it and say it is part of a "bubble" and that, eventually, it ends badly. We agree that it IS a “bubble” for DJT stock, and we will be amazed if buyers of the stock at these levels make sustainable profits.

Think back, though, to the stock market environment of 2021.

Only a few areas of the stock market today (like DJT) are experiencing these crazy price rallies.

Back in 2021, it felt like there were hundreds!

We think what we are seeing is the beginning of a similar eruption. Think of it like a volcano—DJT and some of the other big rallies in stock are the first spouts of lava bursting through the ground.

Eventually, we think there could (again) be many more of these, and THAT will be a sign that the volcano is about to explode and ruin everything.

For now, figure out how to identify these explosive opportunities and take advantage of them!