Note from Ashley Cassell, Managing Editor, TradeSmith Daily: The silver lining after last week's market decline is that TradeSmith is turning up plenty of stocks that withstood the storm – stocks that could come out on top before you know it.
And we're not the only ones finding them.
Luke Lango, a senior analyst at our corporate partner InvestorPlace, has his own "quant" model that deploys stage analysis to spot breakout stocks.
On Monday, many stocks were going through what Luke's model would call "Stage 4" (going down!). But now, we have the chance to grab stocks in "Stage 1," when they're still moving sideways after a drop.
That's one of the key conditions for a breakout trade in this model. Read on as Luke explains what else to look for... |
Unlocking the "Hidden" Bull Market By Luke Lango , Senior Investment Analyst, InvestorPlace It certainly hasn't been smooth sailing this year...
After all, between last weekend and this past Monday, stocks nosedived when the death of the "yen carry trade" converged with a weak July jobs report. The unexpectedly high unemployment number rekindled fears that the Federal Reserve has held rates too high for too long – and that this would inadvertently usher the U.S. into a recession.
But let me state my 400-foot view here: I do not think the U.S. economy is falling into a recession. The economy is indeed slowing down because of higher interest rates, but it's nowhere near as alarming as what we experienced in 2008 – or during the COVID crash. Therefore, as nasty as the stock-market selloff was, I believe it will result in wonderful buying opportunities moving forward.
Worries about the "AI Bubble" popping were front and center as tech stocks suffered their worst decline since the AI-powered bull market began in early 2023.
The fear was that AI was melting down. But there's fear… and well, then there's reality. And the reality right now is that this is a time to be strategic.
During a strong bull market, trading is simple. You could comb through the market's leading stocks (lately, that's definitely been names in the tech/AI space). Add your favorites to a watchlist. Pore over the price action for each trade – and wait for the perfect buying opportunity.
But consider this: There's always a "hidden" bull market raging at any given time.
There's a catch, though: Investing in these hidden bull markets can be very, very risky...
But my team and I have developed a quantitative trading model to remove the guesswork and reduce the risk from investing in these explosive stocks.
Let's take a deeper look. The Breakout Trading System The science behind the model is rooted in an ideology that some of the world's best traders have used for decades: stage analysis.
Legendary trader Stan Weinstein outlined its principles in his 1988 book, Stan Weinstein's Secrets for Profiting in Bull and Bear Markets.
Weinstein's strategy gave traders the guts to overcome the emotions that trigger them to sell first and buy second. (That way, they don't freak out when the markets crumble… buy stocks when they're at their peak and sell them when they're falling… and tank their portfolios in the process.)
This strategy is the basis for a new quantitative trading system designed by my team of Caltech quants. And it's focused on just one thing: trading breakouts.
Our algorithmic model scans more than 10,000 stocks every single week. It identifies stocks in the early innings of massive breakouts, per the model's parameters. Our team of traders then combs through those results and picks the best breakout stocks to buy every week.
In short, the model identifies stocks on the verge of huge breakouts, and we buy the best of them.
At any given point in time, a stock is in one of four stages. It's either going up (Stage 2), going down (Stage 4), going sideways after going up (Stage 3), or going sideways after going down (Stage 1). Stocks tend to repeat those stages in numerical order. Stage-1 bases turn into Stage-2 breakouts, which become Stage-3 tops and end with Stage-4 declines (that eventually turn into Stage-1 bases again).
Our model scans the entire stock market to find individual stocks entering Stage-2 breakouts.
It does that by defining a set of parameters that are consistent with a Stage-2 breakout. Then it runs every stock in the market through those parameters to see if the conditions are being met. If they are, we likely have a stock in a Stage-2 breakout – a stock that could be on the cusp of soaring!
Of course, those parameters are proprietary. But here are a few clues...
We're looking for: - Stocks that have been in Stage 1 for a while.
- Stocks that have recently swung from below to above their long-term price trend line.
- Breaks above long-term price trend lines to be durable and happen on big volume.
- A lack of overhead resistance; new uptrend channels to be clearly forming.
- Golden crosses and upward-sloping moving averages.
Once we've found a stock that verifiably meet all those conditions, only then do we consider it a potential buy. It's a high-quality, algorithmic-driven quantitative system that finds stocks on the verge of short-term breakouts – with the potential for triple-digit returns. The Final Word on the "Hidden" Bull Market Companies that are disrupting industries with new tech can make for great stock picks – when you catch them at the right stage. It's like planting a tree and watching it grow big and strong, right before your eyes.
Enter Prometheus: A next-generation quantitative system that aims to identify stocks on the verge of significant breakouts to the upside.
Our system could speed up your wealth generation by an order of magnitude by getting you in and out of breakout trades at the right time. Think of it as a complement to your buy-and-hold strategy — a way to give your money tree a little extra water and sunshine.
With Prometheus, you have the opportunity to do the following: - Identify potential breakout stocks in high-performing market sectors.
- Utilize advanced data analysis to compete with Wall Street firms.
- Combine algorithmic insights with expert analysis for more accurate predictions.
So, together with your long-term investments, the breakout trades from Prometheus could illuminate your path to a wealthy retirement… or any other money goals you might have.
We're already seeing some of the smartest folks on Wall Street deploy advanced algorithmic models to make money in the markets.
For example, Voya Investment Management is one major firm that's actively using 26 algorithmic models, which Voya calls its "virtual analysts," to help craft investment strategies across stocks, bonds, and more.
I'm confident that within five years, every major investment firm on Wall Street, every professional trader, every big hedge fund, mutual fund, and family office will be using algorithms to pick stocks.
And those who don't adopt an advanced algorithmic powered investment strategy will get left in the dark. So, if you want to get in front of these breakout stocks before they potentially jump 100%+, click here to learn all about Prometheus and take it for a spin. 
Luke Lango
Editor of Breakout Trader | 
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