Note from Michael Salvatore, Editor, TradeSmith Daily: Quick note before I hand it over to Lucas with today's incredible study…
Bitcoin completed its halving event over the weekend. Historically, this has been a significant driver of crypto price gains.
And in less than two hours, our friends at InvestorPlace are putting on an educational webinar to help you make the most of the coming crypto bull run. I highly urge you to attend, as their expert crypto analyst will share one of his top crypto picks for 2024, completely free.
By Lucas Downey, Contributing Editor, TradeSmith Daily
The bears are finally coming out of hibernation…
After a swift crowd-pleasing rally off the October lows, stocks are finally beginning to wobble.
This all comes on the heels of new worrisome factors like rising interest rates and Middle East unrest. Thanks to these developments, the popular "sell in May and go away" Wall Street adage arrived early this year.
But believe it or not, this market weakness shouldn't come as a surprise. Turns out, there's some truth to May being a challenging period for equities.
The thing is, that's only half the story.
With a simple move, you can play this run-of-the-mill pullback to your advantage. And I'm not talking about shorting stocks, buying protection with put options, or anything like that…
Nope.
The evidence proves there's a window of opportunity just around the corner for patient bulls.
Stay with me, because today we're going to unpack an awesome evidence-rich historical study. It reveals why now is the time to start getting your offensive playbook ready. But first, let's check up on recent price action…
Wall Street legend has just uncovered one tiny Maryland company that could become the next Nvidia. Few in the media are talking about this story yet... but in the next 6 months that's all they'll talk about.
The massive rally beginning in November has finally tapered off. Beginning March 28, the S&P 500 has dropped 5.4% and the tech-heavy NASDAQ has dipped 6.64% as of Friday's close.
Those returns pale in comparison to down-and-out small-caps. The Russell 2000 has come under heavy pressure, sliding 8.29%:
Source: FactSet
As alarming as these stats appear, let's remember that my favorite indicator, the Big Money Index, marked a significant change a couple of months back.
In early February I wrote about how this market canary is about to keel over. Markets were overbought and I noted how the BMI was starting its downtrend from those extreme levels.
As a reminder, this proprietary indicator plots the trend of institutional buying and selling in thousands of stocks. It gives you a wonderful picture of Wall Street's demand.
You can revisit that piece and see how historical analysis suggested small caps should stay under pressure for a couple of months.
Our call didn't disappoint …
Here's an updated view of the Big Money Index. Institutional selling has dramatically picked up, sending the BMI free-falling:
I've drawn circles and arrows to illustrate how, once the BMI falls out of the red zone, stocks tend to pull back.
After years of trading institutional order flow on Wall Street, I've learned to respect the ultimate power law in markets: Supply and demand.
Right now, sellers are clearly outnumbering buyers.
But here's the great news: Selloffs eventually end.
And we have strong historical evidence that a seasonal rally kicks off just one month from now…
And learn how you could get started with less than $1.
Prepare Your "Buy the Dip" List Now
It's never easy to stare at falling prices day after day. But down markets are part of the trading game.
And by knowing seasonal patterns, you're armed with a playbook that takes a lot of the guesswork out of investing.
Let's start with the not-so-good news.
There's a good chance that the current pullback has further to go.
By using one of the latest enhancements offered at TradeSmith, we can see that, over the past 15 years, April 19 through May 19 has produced a negative 1.44% return for the S&P 500 (SPY ETF).
The chart below gives you an idea of how this four-week period is fraught with many pullbacks:
This is hard-hitting evidence that lines up with the weakness we currently see in major indices and the severe drop in the BMI.
Clearly, large investors are getting ahead of the "Sell in May" doldrums.
But here's where the bad news ends and the great news begins.
May 19 tends to mark the end of seasonal weakness, kicking off a powerful rally. Check this out. Over the past 15 years, from May 19 through July 28, the S&P 500 (SPY ETF) averages a 4.57% return with a 78% accuracy rate.
If you're allergic to green, look away now:
Don't sell in May and go away. Focus on the bigger picture.
If history is any guide, this pullback will prove to be another amazing buy-the-dip opportunity.
Embrace the dip, then ride the rip.
Start prepping now.
This is an incredible time to sharpen your pencils and build an all-star stock list. This is where using state-of-the-art software, like TradeSmith, comes in handy.
And by focusing on best-of-breed companies with strong institutional support, you'll be in the driver's seat once money pours back into stocks.
From Jason's experience on Wall Street, he learned how to spot the telltale signs that a major Wall Street player was making a move. Time and again, he saw this unusual trading activity foretell big gains in the stock price.
Today, he still watches those signals… but he filters out anything and everything that doesn't flash on a high-quality, fast-growing company.
The result is one of the most powerful growth-investing strategies I've ever seen.
Lucas Downey, Contributing Editor, TradeSmith Daily
P.S. You might've heard bitcoin hit a significant milestone over the weekend… the "halving."
I'll admit, crypto isn't my personal area of expertise. But even I took notice of this event.
And if you do like crypto, I happen to know a guy who understands how to trade it better than anyone else I've met.
His name is Luke Lango, senior investment analyst at our corporate partner InvestorPlace. And in an urgent research presentation airing in less than two hours (sign up with one click here), he's sharing why he believes the gains we've seen in bitcoin and other cryptos so far will pale in comparison to what's coming.
And anyone who attends today's presentation will get the name and ticker for what Luke believes will be the best-performing crypto of 2024.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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