Welcome to HX Trader!

First, let me tell you our primary goal – give you ideas that MAKE YOU MONEY. Hopefully, we can inform, educate, and entertain you, but we are laser-focused on sharing profitable ideas with our subscribers.

Second, thank you for joining us as a subscriber.

This newsletter and its strategies are the culmination of my lifetime's work. My team and I are privileged to share these ideas with you!

My name is Enrique Abeyta.

I’ve been a professional money manager and investor on Wall Street for almost 30 years.

My personal story is a very American one.

My mother fled political turmoil in her native country of Uruguay. My father's family is a mixture of New Mexican Mexicans (there since 1693!) and German/Scotch immigrants to the West. Not a lot of Mexican/Uruguayans on Wall Street!

I spent my youth growing up in Denver, CO, and Phoenix, AZ, but very early on decided I wanted to come work on Wall Street.

Why?

Well, I grew up poor. Our family was homeless for a period and living paycheck to paycheck (with a couple of bankruptcies in between).

I believed that Wall Street and understanding investing were the best opportunities to change my life. Thirty-five years later, I still feel that way, and that knowledge is something I hope to bring to our readers.

My interest in Wall Street led me to apply to the Wharton School of Business at the University of Pennsylvania. This is the top business school in the world, especially for investing. Warren Buffett went there! Today, my classmates from my time at Wharton collectively manage over $1 trillion in assets.

After graduating, I started as a banker at Lehman Brothers. Still, I wanted to move over to investing as soon as possible.

My big break came just two years into my career when I had the opportunity to work with legendary investor Martin Sosnoff.  Martin ran one of the oldest hedge funds, dating back to 1960. There were just four of us managing over $3 billion of capital! This was a great opportunity, and I had my first portfolio management job by age 26.

Across the next twenty years, I launched and ran two hedge funds as Managing Partner – Stadia Capital and 360 Global Capital. Those firms went on to raise over $2 billion of assets.

After those two firms, I was a member of the founding team of another fund, Falcon Edge Capital (now Alpha Wave Global), which began with over $1 billion of assets and currently manages over $30 billion.

During that period, I honed my investing skills and learned how to make money in any market environment!

One of the strengths of my strategies is that we made money in every market downturn we faced, including the bursting of the Dot-Com Bubble in 2000 and the Global Financial Crisis (2007-2008).

After 20 years as a successful investor, I pursued an entrepreneurial opportunity. Along with some partners, I acquired several music media businesses – like Revolver Magazine – and relaunched them with a focus on e-commerce.

Across the next six years, we successfully built this into a $20 million business. This real-life entrepreneurial experience helped me understand investing in businesses even more.

Finally, back in 2019, an old friend of mine – Whitney Tilson – told me he was joining legendary investment newsletter company Stansberry Research to create a new company called Empire Financial Research.

Honestly, I only knew a little about the investment newsletter business. Still, I learned much about the media business and always loved writing.

Whitney walked me through the idea, and I thought, "This is what I was meant to do"!

The newsletter business allows me to take my thirty years of successful investing experience and share it with REAL people.

After going through so many financial difficulties myself growing up, the idea that I can help improve people’s financial futures means the world to me…

Whitney and I ran Empire successfully for five years and had a great experience. In 2024, I have decided to step out on my own and create a new newsletter company – HX Research!

This company and our newsletters are the culmination of my three decades of investing. This is my life's work…

We aren’t some huge company. There are just three of us – my best friend from college (who worked with me before) and one of my best friends from the last 15 years (who also worked with me before). However, we have decades of experience investing and delivering high-quality content to readers.

We are focused on delivering newsletters that educate, are enjoyable to read, AND can give you ideas that make you real money.

One of the first things we want to emphasize is that this newsletter focuses on "trading" recommendations.

What does that mean?

In our view, “trading” means shorter-term strategies that should be able to work in any stock market environment.

Our strategy was developed across my thirty years as a professional investor and first launched as a newsletter in 2019. The strategy at my former firm, Empire Financial Research, was known as Empire Elite Trader.

Across several years, that strategy published almost 300 recommendations and had a nearly 80% positive success rate. It also outperformed the S&P 500 across that time, outperforming in the worst years (2022) and the best (2020).

We will walk through the methodology of the strategy below. Here are some high-level aspects of the strategy…

The trading and investment strategies I have developed across my three-decade career are not based on "theories" about the financial markets but – instead – based on what has worked for me.

They all began by looking at the "theory" of what would work and what I had learned from the great investors of the last half-century. These theories were then put into practice, and we developed strategies we know can perform in any market environment.

My newsletter (and investment) strategies employ an "omnivorous" approach. We leave the door open to do anything that might work.

That being said, we usually stick to one core strategy. The "exceptions" to that strategy have to be unique situations.

This has been the case with the strategy underlying HX Trader. Of the almost 300 recommendations we made at our previous firm, the vast majority (95%+) came from our core strategy.

At HX Research, we often discuss "Plan the Trade, Trade the Plan."

HX Trader has a well-defined "Plan," which we relentlessly pursue.

So – what is the plan?

At the highest level, HX Trader is looking for “winning” companies and stocks where the stock has – for whatever reason – become materially oversold and has begun to recover.

That is a short sentence, but there is a LOT packed in there…

We will go through a real example from our former newsletter to walk you through precisely what we seek in an opportunity.

The company, in this case, is going to be the leading sporting goods retailer Dick's Sporting Goods, Inc. (DKS).

Most of you are familiar with the company. Still, they are the #1 brick-and-mortar independent sporting goods retailer in the USA. Large chains like Wal-Mart and Target sell more sporting goods than them on a dollar basis. Still, they are the biggest ones solely dedicated to the category.

First, how exactly do we define a “winning” company?

We are usually looking at two areas – growth and performance versus analyst expectations.

1) GROWTH

We invest across all different styles, but GROWTH is the single most potent factor we have seen to drive stock prices higher.

Companies that grow revenue and earnings almost always see their stock prices rise! Companies that produce these metrics often see their stock prices go up a lot…

Let’s take a look at Dick’s across the last five years on both revenue and earnings per share (EPS) growth metrics.

Here is the revenue growth for the company pulled from Bloomberg…

The company has seen tremendous revenue growth. Since 2019, they have seen revenue grow by more than +50%. Not too bad for five years.

They benefitted from the COVID period but have managed to keep growth – albeit slower – going afterward.

Here are the EPS estimates for the company across the last five years…

Here, they have seen MASSIVE growth! The company has seen calendar year earnings increase +237% during this period.

Earnings growth slowed after a massive COVID bump but has settled in at these higher levels.

Note that it hasn't just been the crazy period around COVID; this company has seen good growth as they grew very nicely in the five years prior.

When you see this kind of revenue and growth and (especially) this kind of earnings growth, you always see a stock that has done very well.

Here is what the stock has done across this period…

Since the start of 2019, the stock has gone from roughly $30 per share to over $140 per share recently, or +367%!

The overall stock market has also done pretty well across this period, but not THAT well…

This combination of revenue and earnings growth combined with stock price performance defines a "winning" company.

There is another aspect of "winning" that we look for in a company, and that is…

2) PERFORMANCE VERSUS ANALYST EXPECTATIONS

We talk a lot about human psychology in our investment newsletters. It is a significant driver of how stock prices react to news and the performance of the stock price.

This is true both in the short- and long term-but is especially important in trading.

Growth in revenues and earnings is excellent (and BIG growth is even better), but "winning" stocks usually also "beat" investors' expectations.

We already showed above that DKS has been a "winning" company in growth. Still, another reason it has been such a "winning" stock is its performance on this metric.

The first way we look at this information is by looking at what has happened to analyst expectations for crucial metrics like EPS.

A community of professional "sell side" analysts is researching the company and publishing their expectations about its performance. In the case of DKS, there are 23 analysts currently with estimates on the company.

Here is how their estimates for this most recent year’s EPS have trended across the last few years…

This chart comes from a Bloomberg function called "Earnings Estimates Graph" or, as we refer to it, "EEG."

While there has been some volatility – and numbers have not gone up that much in the last few years – you can see that these estimates have trended higher through time.

DKS is unusual with the massive growth out of the COVID period, and that was a difficult period to predict, so the fact that estimates have been technically flat (or even down a little) since mid-2022 is not a big deal.

Especially in how the company has performed on reporting the specific earnings data.

Here is a table showing how their reported EPS report has measured up relative to analysts' expectations, along with the stock price performance that day…

That is a lot of GREEN on the table!

Since the 3^rd quarter of 2018, the company has beaten analyst expectations for EPS in 19 of 21 quarters.

One of the negative quarters was right after the COVID shutdown. The other is the quarter that brought us into the stock in our recent recommendation.

We often use sports analogies. Performance against analysts' expectations shows how the team is "clicking" and working together. Like sports, excellent company management teams will tend to outperform consistently, while poor teams will underperform.

This is another way we look for “winning” companies and stocks.

Next, we look at some "technical" factors based on the stock price. These include the long-term stock price and the Relative Strength Index or "RSI."

3) LONG-TERM STOCK PRICE

We have already discussed that we are looking for "winning" stocks. Still, we want to emphasize it and explain why we are looking for that particular type of stock.

Again, "winning" means that the stock price has increased significantly.

One way investors often describe it is "up and to the right," and this is a simple description of the chart. We want to see stock prices that have trended higher through time and are close to their highs.

Let's look at that chart of DKS again. Here it is…

Let's compare it to another company in the sporting goods industry – Foot Locker, Inc. (FL). Here is the same five-year chart…

See the difference? This stock was cut in half at the same time that DKS went up almost +250%.

Why is there a big difference in the stock price performance?

Foot Locker has not been a "winner" in the last half-decade. Revenue is flat, and EPS has been cut in half – like the stock. The company has also seen earnings estimates trending downward and suffered significant earnings misses.

Why does this matter for our strategy?

Interestingly, our NEXT technical factor – RSI – can often predict recoveries in even "losing" companies.

We might get a "buy" signal on FL, which can produce a high probability of good returns. That signal is so strong that it works on almost ANY stock.

We aren't looking for just any opportunity – we are looking for the BEST opportunities.

While a profoundly oversold signal from a stock's RSI may indicate a high likelihood of making money, we want to stack the cards in our favor. That is why we look for "winners."

This is how you get a higher probability of making money but can also make more money.

Let's now talk about that final – and most important – signal in our core strategy…the Relative Strength Index or "RSI."

4) OVERSOLD RSI AND RECOVERY

Look up "Relative Strength Index" on the internet, and you will find the following definition….

"The relative strength index (RSI) is a momentum indicator that measures recent price changes as it moves between 0 to 100."

We aren't going to dig deeper into the technical definition. Still, it is a number between 1 and 100 that looks at the recent average price gains in the stock and compares them to the recent average price losses. This is usually done across 14 days.

Let’s focus on that 1 to 100 scale.

A stock is considered "overbought" when the RSI is above 70. It is considered "oversold" when the RSI is below 30.

What do “overbought” and “oversold” mean?

They are subjective, but we like to think of it as enthusiasm and let's go back to our sports analogy.

When your team has a 14-game winning streak, you get very excited! You may find yourself watching them more, go out and buy team merchandise you might not usually buy, and think the team might never lose again…

If your team is on a 14-game losing streak, you lose interest. You stop watching, don't check the box scores, and might even toss your jersey…

Like in sports, though, on a probability basis, there are almost no teams ever that don't win SOME of their games.

Sure, teams occasionally go "O-fer" for a season, but they are few and far between. The same is true of publicly traded stocks going bankrupt and never going up again. It happens seldom.

More importantly, remember that we are looking not only at any old teams (stocks) but also for ones with a long history of winning.

Think of it this way – we are looking for winning teams that have hit a pretty bad near-term streak.

We measure this by looking for stocks trading below an RSI of 30. This indicates that momentum could be better, resulting in a potential opportunity.

The key to our strategy is that we only get involved AFTER the stock has traded back above the 30 RSI level.

Technical analysis is dismissed by many as "voodoo." Still, the price of a stock can tell us about the combined emotions and actions of all market participants. A low RSI tells us they are pretty upset.

The RSI going back above the 30 level tells us that the market is beginning to calm down, and there is more of a balance between the enthusiasm of buyers and sellers.

Again, the key is that we are looking at this RSI signal on very particular "winning" companies and stocks.

Now, let's take a look at our DKS example. Here is the chart from June 1, 2023, until a little bit after we recommended the shares in mid-September of that year…

First, you can see the BIG price drop that made us interested in the stock. In two days, the stock traded from almost $150 per share to below $110 per share. This was one of the most significant drops EVER in the stock.

Second, look at the bottom of the chart, and you can see the chart of the RSI. On that initial break in the share price, the RSI traded to a closing RSI of below 25!

This is very rare for this stock. Companies with a track record of growth and beating expectations, like DKS, seldom reach these oversold levels.

The stock began to recover and traded back through an RSI of 30 four trading days later. This was when we became interested in the trade recommendation.

Let’s now take a look at what happened after our recommendation…

The stock initially traded lower, almost hitting $100 per share. This is normal in these types of situations. It is nearly impossible to call the "bottom" when a stock gets this deeply oversold.

After a couple of months of digestion, the stock started climbing higher.

It then broke out in late November after reporting a better-than-expected EPS report. Remember that the company beat almost every quarterly expectation for five years, and they did it once again.

This brings us to the final aspect of what we look for in a “core” idea…

5) ASSESS THE SITUATION

For a "winning" stock like DKS to get to these material levels of oversold, there must be some "reason."

We say "usually" because the reason might not have anything to do with a particular company or stock but instead be driven by other things happening in the stock market.

As a general rule, there are two classes of "reasons" that we look at in these situations…

Idiosyncratic/Company Specific

In finance, whatever is happening only concerns the individual stock and not the overall stock market or the company's industry.

Most often, the "reason" has to do with the financial results reported by the company.

This was the case with DKS. The big break in the stock price in late August was driven by the company reporting an earnings "miss ."Remember the table of earnings reports above?

After a long history of beating earnings, why did the company miss this report?

The company singled out the idea of "shrink" on the conference call. That is an industry term for shoplifting.

The company (like several other retailers, including Target) said they were seeing a lot of theft. This had a very negative impact on their earnings.

The company noted that they were responding to the higher-than-expected theft and were putting in processes to prevent it in the future.

As a stock buyer, did we have any guarantee that these changes would be successful?

Not at all. Furthermore, we have never worked in the sporting goods industry nor managed a sporting goods store.

What we could look at, however, was the company's historical track record. Remember from above that this company has had an excellent track record of growing and beating estimates. They have been "winners".

Were there any guarantees they could get back on track and get back to "winning"?

Again, there are no guarantees, but a strong track record means a lot.

We also recognize that only some positions we recommend will be successful. It was entirely possible that the company was not going to get the situation under control and continue to disappoint. If so, the stock likely would not have recovered, and eventually, we would have closed the trade.

There are no guarantees in investing, but you CAN stack the odds in your favor.

This brings us back to our example with their competitor, Foot Locker, Inc. (FL).

That company has an extended track record of not meeting expectations and "missing" consistently.

As mentioned above, a deeply oversold RSI signal (and recovery) in FL stock would create a higher probability for a money-making opportunity. However, it was not one that we would have recommended.

Why recommend betting on a losing team when you can bet on a winning one?

The situation with DKS was a perfect example of an idiosyncratic or company-specific opportunity in our core strategy at HX Trader.

There is also another type of opportunity that we see often…

Rotational/Industry Specific

Sometimes, individual stocks trade down as something impacts their specific industry and leads to enthusiastic selling.

These factors are often valid and do not necessarily present a good trading opportunity.

Who wants to buy auto stocks if we are about to go into a deep recession?

Often, though, there are industry-specific moves in stocks that have more to do with what are called "rotations" and not necessarily the underlying fundamentals of that industry and those companies.

“Rotations” refers to the movement by large institutional investors out of one group and into another for various reasons.

One of the most extensive rotations we saw in recent years happened during the post-COVID period during the recovery.

At the height of the COVID panic, many institutional investors rotated into "defensive" industries like consumer household products. They believed consumers would still need to buy daily supplies during high economic uncertainty.

As consumers could not leave their homes, there was also a significant spike in demand as they spent more time at home and consumed more of these products.

This made these stocks attractive to these big investors managing hundreds of billions of dollars. They bought many of them and outperformed significantly during the stock market volatility around COVID.

Usually, these investors were selling companies that had more direct negative exposure. Think retailers, hotels, cruise lines, etc.

However, once the world began to recover, these investors looked at their relative "weightings" to the different sectors and realized they might have a problem.

These big investors are usually measured against a specific stock market index like the S&P 500.

Suppose the investor owned very few consumer discretionary stocks (like retailers and hotels), and these companies have big moves. In that case, they might underperform their index. As a result, these investors began to sell the consumer products companies they had bought previously.

Was there anything wrong with these companies? Were they going to miss earnings or report negative results?

Not at all! Most of them continued to perform exceptionally well. Many of them are some of the best companies on the planet.

Despite the promising results, many of these companies reached historic oversold levels. This presented an opportunity for our strategy; we made money on many of them. 

These two types of situations – idiosyncratic and rotational – make up the vast majority of the opportunities that we recommend in HX Trader. Not all of them, though, and we are open to any opportunity that we have seen successfully work across our three decades in the markets.

One of the hallmarks of my career as a professional money manager was my ability to preserve capital and even make money in down markets.

I joined my first hedge fund a year before the Long-Term Capital Management (LTCM) crisis. I made money during that period of high volatility.

I launched my first fund at the heart of the collapse of the Internet Bubble and six months before September 11, 2001. We made our investors money throughout that period.

My next fund was launched just a few months before the Lehman Brothers collapse during the stock market volatility of the Global Financial Crisis. Again, we made our investors money.

Finally – and we discussed this above – our trading strategy performed exceptionally well during the most recent volatility in 2022.

Considering we are launching our new firm, HX Research, we always warn folks to be careful if they start something new in the investment world – volatility could be just around the corner!

However, our strategies are our BUILT to manage and thrive during these periods…

Again, we discussed above how the strategy employed at HX Trader performed during the problematic market period in 2022.

Trading strategies, by definition, have a better opportunity to take advantage of the dislocations that occur in the large market sell-offs. Volatility is scary for investors but can present great opportunities for traders.

The focus of our strategy also helps with risk management. By only looking at liquid stocks and winning companies, we can better manage risk.

Keeping our strategy relatively simple is often the best risk management tool for investors during periods of volatility.

The final key to our risk management is our “stop loss” strategy.

A stop loss is a determined price at which you will exit a position.

Stop losses can take many forms: hard stops (a specific price level) and trailing stops (which change as the stock moves higher) are the most popular.

No matter which one you use, stop losses, instill discipline, take the emotion out of investing, and help minimize your losses.

Establishing your stop loss levels, though, can require some real thought.

Make your levels too close to the current share price (or "tight"), and you risk losing out on a winning position as a result of market volatility.

Make them too far away ("loose"), and you risk losing too much money.

Our stop losses at HX Trader are set according to two rules.

First, we don't look at the loss on an absolute basis.

Instead, we look at it relative to the stock market indices.

Each stock has a market index with which it is most closely aligned. Some are aligned with the S&P 500, some with the technology-heavy NASDAQ, and others with the small and mid-cap Russell 2000.

For our strategy, most positions correlate to the more significant capitalization indices – the S&P 500 and NASDAQ.

We then calculate how much the stock is down versus the index.

For instance, if the stock is -10 % over a week but the index it is aligned to is down 5%, it would be -5 % on an "alpha" basis.

“Alpha” is how investors refer to how much a stock outperforms or underperforms the overall stock market.

The second way we look at it is by understanding the stock's underlying volatility in the past. This is how big the moves are in the stock.

Different types of stocks have different levels of volatility that are "normal."

A mega-cap company like Microsoft (NASDAQ: MSFT) will likely have smaller moves than a small-cap stock.

We then set the stop loss using the volatility of the stock and measured it against the stock market index.

Suppose the stock moves more than usual (greater than its volatility) versus the stock market index. In that case, we will look to close the position.

The goal of adding these two additional measures to the stop loss is to ensure we don't get "shaken out" of the trade.

At HX Research, we often use gambling and probability analogies. There is never a trade that is a "sure thing ." With each of our recommendations, there is a possibility of loss. We strive to deliver ideas without a probability of loss.

We expect to win far more often than we lose. Stop losses help us avoid catastrophic losses and make a profit over the long term.

Remember our motto – “Plan the Trade, Trade the Plan”.

Risk management and stop losses are essential parts of that plan!

Thank you again for subscribing to HX Trader!

It may sound grandiose to say that this strategy is the culmination of our life’s work, but it is…

When I was 16 – or 35 years ago – I made the decision that I wanted to work in the financial markets.

Across these last 35 years, I have spent most of my working hours in the markets and learning how to make money, emphasizing doing so in ANY market environment.

We are incredibly proud of the products we have built at HX Research, and HX Trader is one of our best.

On a personal note, I would also add that it is a great privilege and responsibility to bring these recommendations to you – our reader.

Across my twenty years of managing money as a hedge fund manager, we worked for some of the largest institutions and governments in the world. It was a great responsibility to manage the assets of these funds with responsibility for funding pensions and services.

However, it is a much greater responsibility to share our recommendations with REAL people.

We hope you can take advantage of our experience and insight and MAKE MONEY that can change your financial future…

One last time – THANK YOU!