😨 Fear Sells… But It Doesn’t Pay

What’s on the Menu 🍴

We’re seeing big bounces this week across stocks and crypto markets…

But what does this mean for next week?

Let’s dive in:

• Digging For Gold at the Dollar Stores 💵

• Fear Sells, But It Doesn’t Pay 😨

• The Bounce Is On: Technical Analysis Update 📊

Today’s newsletter is a 5 minute read.

Digging For Gold at the Dollar Stores 💵

In Wednesday’s edition of the Daily Dough we compiled recent insights from CEOs, and one major theme was that consumers are increasingly seeking value in this economy.

Yet despite consumers’ stingier pocketbooks, dollar store chains are now trading at decade low valuations:

This is a little surprising to us, because dollar store chains have historically done well during times of economic softness.

Their weak recent performance also stands in stark contrast to Costco stock, which is trading near its highest valuation ever.

Some reasons that the dollar store chains have struggled recently include:

• Less spending by lower income consumers

• Margin declines due to cost inflation

• Competition from low price online retailers such as Temu

• Difficulties integrating past acquisitions

• Rising theft

While these are definitely concerning issues, some of them can be addressed through better management, merchandise selection, and pricing.

There’s also potential for more tariffs against cheap Chinese goods in the years ahead, which could hurt Temu but help dollar stores.

It’s also worth mentioning that dollar store chain stocks outperformed the S&P 500 by a good margin in the five years following the global financial crisis:

During those years the dollar store chains gained retail market share and were able to grow revenues at a robust pace.

It’s quite possible that dollar store chains could see a resurgence in business if the economy weakens and pushes more consumers to seek low priced goods.

Then of course there’s the optically cheap valuations, which may tip the risk-reward balance in investors favor at current stock prices.

This is definitely a beaten up sector that we plan to research further.

Could there be a reversal in fortunes for DG, DLTR, and FIVE? Stay tuned!

Fear Sells, But It Doesn’t Pay 😨

Every time the market takes a nosedive, the financial media rolls out its favorite scare tactics, with headlines like “Markets in Turmoil” plastered across screens. It’s like clockwork—cue the dramatic music and panicked voices.

But here’s the kicker: these fear-driven segments don’t help investors; they actually hurt them.

Let’s talk about what happens when CNBC hits the panic button. We’ve got a chart that’s practically a mic drop moment.

It shows what the market does after one of those infamous “Markets in Turmoil” segments airs. Spoiler alert: the market tends to rebound.

But by then, many investors have already made the classic mistake of selling low out of fear, only to miss the subsequent recovery.

Fear sells, but it doesn’t pay. In fact, it can cost you dearly.

The Panic Cycle

The financial news media knows that fear grabs eyeballs. When the market drops, it’s easy to convince viewers that the sky is falling.

But here’s the problem: reacting to these fearmongering tactics can lead to poor investment decisions.

Historically, the market recovers, often within days or weeks of these sensational headlines.

Those who hold steady or even buy during these dips often come out ahead, while those who sell in panic are left nursing losses.

The Takeaway

Next time you see one of these doom-and-gloom segments, take a deep breath and remember the bigger picture.

The market is volatile, sure, but over time, it has an upward trajectory. Don’t let fear push you into bad decisions.

Instead, use these moments as opportunities to buy undervalued assets. Remember, fear might sell news, but it doesn’t pay your bills.

The Bounce Is On: Technical Analysis Update 📊

After a panicked Monday morning of global markets selling off, it looks like we’re seeing a nice reprieve.

Maybe everything isn’t completely falling apart…yet.

The technical side of investing is something we like to look at. Here’s what were seeing:

The Nasdaq 100:

The Nasdaq finally made contact with the 200 day simple moving average, which it hadn’t since March 2023!

We think this price action is healthy and now all eyes will be on the 200 day simple moving average to see if it holds as support for a bounce or we see a shift out of the bull trend.

The S&P 500:

Unlike the Nasdaq, the S&P got close to the 200 day moving average, but never actually hit it.

So there is certainly more downside potential for a finished move in this correction. Generally, we still think a move lower would look healthy. As you can see, it’s rare we see price ever NOT retest the 200 day moving average.

Bitcoin:

Bitcoin has broken below the 200 day moving average, however, historically this hasn’t been the most reliable confirmation of a trend.

We’ve seen a lot of oscillation around the 200 day and breakdowns turn quickly back into bullish trends.

Currently we have our eye on the broadening channel (yellow lines of support and resistance).

The lower lows forming aren’t ideal for a bullish trend, so we will be watching price action closely.

It doesn’t appear to be time to panic based on the technicals alone as major areas are holding up better than expected with strong bounces.

Food For Thought 🧠

“Never spend your money before you have it.”
- Thomas Jefferson

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.