The Darkness Before a Yearlong Dawn By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Seasonality warned us this would happen…
- Here’s where the bulls need to step in…
- Two big signs that they already are…
- Ranking presidents by their volatility…
- The best Power Factor stocks to buy into year-end…
- A generational melt-up is upon us…
Last Wednesday, we showed you why leaning bearish right now was the right move… Seasonality held the guiding light. Here’s what I told you then… Since inception, SPY has started to fall right around now and lasting through mid-March. Take a look at this chart of SPY seasonality, part of our Trade Cycles software: 
From the peak on Feb. 15 through March 12, the S&P 500 has fallen an average of -0.73% on 15 out of 32 years. Now, that’s a bit of a toss-up. But with the way the chart looks above and how chaotic the year so far has been, I’m gonna lean bearish here. Since that warning, the S&P 500 is down about 1.5% and has lost what I’ll consider to be major support. Let’s take a look at the chart… 
This chart reveals that the S&P 500 was in an uptrend since Jan. 13, the week before the inauguration. Emphasis on was. After breaching new highs last week, it has since come back down through that rising trendline and down through major support. If this uptrend is going to resume, the bulls have to step in and take a stand here. If they do, the price action today (writing Friday) will be the “darkness before the dawn.” But having lost ground below $606 on SPY, we’ve broken the uptrend, which is more likely to keep stocks suppressed. The next support is down at around $600, and then around $595 – the level we discussed last week. So the obvious question becomes, will the bulls step in? | Recommended Link | | | | He found Nvidia at $1 and watched it soar 7,394%. Now Louis Navellier, Wall Street’s most successful tech stock hunter, has identified what he believes could be his next legendary pick. Using the same quantitative system that’s spotted tomorrow’s tech giants for four decades, he’s found a small chip maker that reminds him exactly of early-stage Nvidia. The name and ticker symbol are yours free in his urgent new presentation. But act quickly – once institutional money starts flowing in, the early-mover advantage could vanish. Click here to see it. |  |
They certainly did last week… Here’s a good tidbit from Reuters… U.S. equity funds attracted inflows for the first time in three weeks in the seven days to Feb. 19, buoyed by easing inflation concerns and strong fourth-quarter corporate earnings that boosted risk appetite. Investors bought a net $1.59 billion worth of U.S. equity funds during the week, registering only their second weekly net purchase in seven weeks, according to data from LSEG Lipper. The reason for such sudden bullishness? Despite some unexpected earnings beatdowns after lowered guidance from titans Microsoft, Walmart, Amazon, and Google, more than 75% of S&P 500 companies have reported better-than-expected results. And that’s not the only source of positive flows. Our growth stock and money flow expert Jason Bodner uses an advanced, purpose-built algorithm to detect likely signs of institutional order flow from the deepest pockets on the Street. Volatility is not dousing the Big Money fire for now. Here’s Jason writing to his subscribers last Tuesday… Market data tells us Big Money continues to buy more than sell. My Big Money Index starts this short trading week at 59.6, which means that 60% of Big Money signals in my Quantum Edge system are buys. You can see the green bars (buys) outnumbering the red bars (sells). 
Source: MAPsignals.com We are nearing the end of earnings season, and despite some large moves, we are right on the 10-year average for beats. Indexes are at all-time highs. Ten of 11 sectors are trending higher with more inflows than outflows. And rates look to come down this year one way or another.
It all adds up to a favorable environment, especially for small- and mid-cap stocks, which remain our primary focus. And especially for stocks with superior fundamentals, strong technicals, and Big Money inflows. I’d also like to share another fascinating study Jason created last week on market volatility during previous White House administrations… I also dug into volatility data from President Donald Trump’s first term, and while we might expect it was more volatile than other administrations, that was not the case. The chart shows those years were good for stocks, with the lowest volatility of any presidential term since 1997.
Here’s the data. The third column shows absolute volatility over a 20-day moving average, and Trump’s first term was less volatile than those of Bill Clinton, George W. Bush, Barack Obama, and Joe Biden. 
We will see how Trump’s second term plays out, but that is encouraging. And it means we stick to our strategy of monitoring money flows and investing in the highest-quality stocks. All of this continues to suggest we’re in a seasonal weak period before a big lift heading into March, April, and May – some of the best-performing months for stocks all year. So, shall we look at some of the best stocks to buy? One of my favorite reads on the market is Jason’s Quantum Edge Hotlist. This hotlist charts the top and bottom stocks based on their Power Factors: - Fundamental strength: namely earnings, revenue, and profit margin growth. In our testing, we’ve found the Big Money chases these fundamentals more than anything else.
- Technical strength: a combination of momentum and unusually high trading volume that’s a telltale sign of institutional interest.
Jason updates the list and sends it out to his subscribers every Monday. Below is last week’s list (subscribers will get the latest numbers this afternoon), which should give us a good idea of what the Big Money was hot on just as the market surged to new highs… 
The difference between this year and last is stark. When we first started sharing the Quantum Edge Hotlist, the bottom ranks were lousy with biopharma companies, and they were nowhere to be found near the top. We still see some biopharmas at the bottom, but for several weeks now the #1-ranked stock was Catalyst Pharmaceuticals (CPRX), along Corcept Therapeutics (CORT) at #8. Other longtime entries Stride (LRN) and Doximity (DOCS) continue to stay near the top. We’re also seeing some consistency in the appearance of Agnico Eagle Mines (AEM), which first appeared on the list a couple weeks back. Once again, Jason updates this list every week and sends his Quantum Edge Pro subscribers the latest Big Money activity. It’s the best growth stock research I’ve ever seen, and you should consider joining his mailing list. Click here for all the details. We may not see another market like this in our lifetime… After last Friday’s nasty sell-off, you might think we sound a little bit crazy calling for a mega melt-up. But we’re confident that hindsight will treat this call well. All the factors for a monstrous return in 2025, and beyond, are lining up. Not only do we have an expansion of liquidity and moderating inflation, marks of the last melt-up in the ‘90s… We have a breakthrough technology, the start of a boom in consumer credit, and greater access to investing than ever before. The ingredients are in the pot. The fire is heating up. And the time to act on what could be an extraordinary year ahead is right now. Day-to-day price action will do what it does best and shake out the investors with the least conviction. Not us. We know that what’s coming is not to be missed. And we have the tools and strategies to find “melt-up stocks” while they’re on offer. If you missed my interview with TradeSmith CEO Keith Kaplan on Saturday, that was the main focus. I rarely see Keith so fired up as he is now – and I myself found a great stock idea for you, as you’ll see. After you check it out, be sure to save your spot in Keith’s free demo Thursday, which he’s calling The Last Melt-Up… And he’s got the research to back it up. To your health and wealth, 
Michael Salvatore
Editor, TradeSmith Daily | 
