Postcards: Mr. Bill Buys Some Banks

Our Equity Strength Signals are back to Yellow and looking to continue a breakout after a three-week collapse across the S&P 500 and the Russell 2000.                                                                                                                                                                                                                                                                                                                                                                                                                 Forwarded this email? [Subscribe here]() for more [Postcards: Mr. Bill Buys Some Banks]( Our Equity Strength Signals are back to Yellow and looking to continue a breakout after a three-week collapse across the S&P 500 and the Russell 2000. [Garrett {NAME}]( Nov 2   [READ IN APP](   It was a monumental rebound today, and the Russell 2000 (IWM) is just strong enough to signal that we’re back in positive strength territory. Of course, tomorrow brings a critical jobs report and we will see the reaction to Apple (AAPL) earnings after the tech giant reported its fourth consecutive quarterly sales decline. That 170 level on the Russell 2000 ETF is a critical line that must be crossed for momentum. All sectors have now experienced weekly gains. [Upgrade to paid]( Dear Fellow Expat: Two days ago, I scrolled through Barron’s to read an update on Bill Gross. Gross co-founded Pacific Investment Management Co. (PIMCO), a global fixed-income investment company, and was long referred to as the “Bond King.” “Bond king” is a great title. Sure, it’s no Sir Gregor MacGregor’s stint as “[King of the Florida Republic,]( but Gross clearly did very well for himself. He went on to run a massive fund at Janus before “retiring” to run a Family Foundation with assets of roughly $400 million. Even in retirement, media outlets regularly turn to him for insights on fixed income and general macroeconomic views. In the article, published October 30, the headline reads: “Bond King Bill Gross Is Staying Away From Regional Bank Stocks. Except for These 3.” But then… two days later… [Record scratch sound] Gross told CNBC that the bottom is in for regional banks. He’s buying Truist (TFC), Keybanc (KEY), Citizens Financial Group (CFG), and First Horizon Corp. (FHN). Again… two days ago, he called regional banks a falling knife… and said he was waiting for 7% dividends and big valuation discounts. Now, he’s buying the banks up. This is confusing because Gross was [buying regional banks in April]( - calling them a “license to make money” but then [was out of them in August]( and down on the 10-year bond, according to Markets Insider… It sounds like the man is a momentum trader, after all. All four of these Bill Gross regional banking stocks surged today, and the Direxion Shares ETF Trust - Direxion Daily Regional Banks Bull 3X Shares (DPST), which we use to identify a breakout in the sector, surged a stunning 16.3% on the day. Our equity signal surged positively today in the [financial sector]( (alongside several other sectors, including utilities and energy). Strong volume today suggests we might be on the verge of a rally on the S&P 500 back to 4,400 or even higher after a deep dive into correction and oversold territory last week. No surprise for us, as we talked about this in the Risk letter, discussed the shifts in the [MACD readings on the S&P 500]( and the Russell 2000, and noted that insider buying is a strong signal for a temporary rebound. This doesn’t mean that we aren’t going to have another selloff (we will), but we’re seeing market behavior similar to 2018. Be careful… If you missed out on today’s rally in these stocks… there’s another way to play these regional banks. Today, I’ll show you exactly how we focus our attention at the [Republic Risk Lette](. What are Insiders Buying? As I’ve noted, insider buying activity on a large scale can serve as a signal that a rebound is coming in the market. Last week, we saw the strongest five-day buying spree among insiders compared to sellers (dollar for dollar) in 2023. Among the sectors with strong insider buying activity was the regional banking sector. We saw a $555,000 stock purchase from the CFO of M&T Bank (MTB) at $111.04 per share. The Chairman and CEO of Truist (TFC) bought $280,480 in stock with his own cash at $28.05 per share. And a director at Fifth Third Bancorp (FITB) bought another $1.5 million in shares at $23.31 per share. You don’t need to buy these stocks right now because others are buying. But we do know that insiders buy their stock for one reason: They expect they are going higher - and they’ll hold them for at least six months. Instead of buying them - you can wait for our financial signal to turn positive (which happened today). Then, you can sell put options at prices lower than the purchase prices of the executives or look to sell put spreads with the following characteristics. [You’re looking for an 80% probability of profit.]( [At least a 15% to 20% return.]( And you’d like to see the trade provide a 100% annualized return so that we can try to do it repeatedly in positive conditions. If the financial signal turns negative, we simply cut our position. But what’s nice about these spreads is that it doesn’t matter if the stock price goes up, stays the same, or falls slightly. The December 1, 2023, $27-28 credit spread for Truist (TFC) can capture a premium of $20 with $80 in margin. It has a 79% probability of profit and a 25% return. The breakeven price for the trade is $27.80, which is lower than the director’s entry price. And if financials go negative, we just cut the position before any sudden reversal. We’re looking to take [what the market is giving us](. So long as the stock remains above the price of the put contract we sold, we can make money. Tomorrow, I’ll discuss a few trade ideas using this strategy at the Republic Risk Letter. Stay positive, Garrett {NAME} You're currently a free subscriber to [Florida Republic Capital](. For the full experience, [upgrade your subscription.]( [Upgrade to paid](   [Like]( [Comment]( [Restack](   © 2023 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()