Liberation From Foolishness By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Today marks a big, unclear step toward a clear endgame...
- But a renewed clarity could set up a major rally...
- Wouldn't it be great if April Fools' Day marked the bottom?
- Checking in on Jason Bodner's "exact bottom" call...
- Earnings season hype is here again...
- And here's the best way we know of to play it...
The day has come... Are you excited? Anxious? Ready to get the dang thing over with?
Yup, right there with you.
Today is Liberation Day. At 4 p.m. ET, President Donald Trump will finally tell us what we're tariffing, from where, and how much... lifting the shroud of uncertainty from the market.
That, of course, is the "perfect world" scenario. As I argued last week, we should not expect the liberating to end here. The day after April Fools' may in time make fools of us all.
Way I see it, Trump's trade endgame will not be a one-and-done deal. It will be a constantly moving target, with announcements, denouncements, walkbacks, and all sorts of other adjustments, even non-trade-related (like taxes), on that path forward.
That path will remain murky. And some might argue that's part of the plan itself.
But we can at least be thankful of one thing... We have an idea of the destination... If you haven't done a lot of reading on the Mar-a-Lago accord, I'll give you the nutshell version now.
The idea that tariffs are a negotiating tactic is probably only one-third right. The White House clearly sees that as a nice side effect of them, but this more broadly is about getting trade imbalances back in whack, and most broadly about preventing a changing of global leadership from the U.S. to China.
Let's start small and get bigger.
China currently runs a trade surplus of $1 trillion, meaning it net exports $1 trillion more in goods than it imports. That alone is an issue – it means we rely on China for a lot of our goods. But it also means that China's incentivized to keep its currency cheap relative to the dollar so it can continue to be competitive on price.
At the same time, it takes all that money it earns exporting goods to the U.S. and buys U.S. Treasurys, thereby contributing to the U.S. debt problem and the money supply... stoking inflation – and making it even harder for U.S. consumers to resist buying cheap Chinese goods.
This is where we gain some clarity on the tariffs, especially on China but also everywhere else. We want foreign goods to at least be about as expensive as U.S. goods. That's step one to getting people to buy American, reducing trade imbalances, and stopping China from contributing to dollar inflation.
Then, as inflation subsides, the dollar itself will weaken, making our goods less relatively expensive and, down the line, putting us in position to potentially revive the industrial base and have a trade surplus of our own for the first time since 1975.
Now, as we've already seen, tariffs are disruptive and in the short term likely to cause inflation for consumers...
That's where taxes come into play.
Reducing income taxes would help offset the pain of higher short-term import costs for American consumers. More aggressively, eliminating income taxes could offset them completely. Americans will simply keep more of their earnings to spend, while simultaneously being more incentivized to spend their earnings on less-expensive, American-produced goods. If you're working in the White House, that's the win-win deal of your dreams.
You might be asking – well, tariffing China makes sense, but why tariff Mexico, Canada, Europe, and our other allies?
Strap in – because tariffing our allies is actually about strengthening our allies. Specifically, their national security.
The idea with tariffing allies, but especially Europe right now, is to get them to fend for themselves without as much U.S. intervention. This helps reshore our own security resources and, as our neighbors spend more on their own security, strengthen them in a roundabout way.
And this leads to the biggest, boldest, most important part of the endgame...
It's about ensuring that the West is better insulated from the ever-slowly-growing threat of China overtaking the global world order and unseating the dollar as the global reserve currency.
There's lots more to say on tariffs, clearly beyond the scope of today's Digest. Even this attempt at a nutshell wound up looking more like a sprawling peanut plant.
But it should bring you some comfort that, no matter how well the plan itself executes, there is a plan in mind, and that plan is not to dismantle the U.S. economy for no good reason.
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Now, let's talk price action... The S&P 500 might have just done something really funny and confirmed a bottom on April Fools' Day, with the second intraday upside swing in a row, no less.
On Monday, the SPDR S&P 500 ETF (SPY) came down to kiss the really, really scary trendline we likened to a 10 on the "pain chart" last week.
Investors stepped in to buy on that trendline, turning a negative session into a highly positive session. We're doing something similar here on Tuesday as I write this. Stocks opened lower but, as of 1 p.m. ET, were trading higher on the day: 
These kind of daily candles are what you want to see if you think we're marking a bottom. What you also want to see is positive divergence on the Relative Strength Index (RSI, purple shading above), and a fresh buy signal from the RSI moving average (yellow line) crossover after a brief dip below.
Especially with today being Liberation Day and a lot of uncertainty starting to lift, there's a strong chance that the lows are in for the recent rout.
And you know what's funny? Our very own Jason Bodner called this a few weeks back: [Right now], my system is picking up 1.5 sell signals for every buy signal.
Source: MAPsignals.com I looked for the same setup in the past and found 23 earlier instances since 1990. That's a good sample size.
Here are the key takeaways, which revolve around when the BMI [Big Money Index] fell from the 45 level, which was March 6 this year.
- It took an average of 14.4 days to fall from 45 to oversold (25). That gives us a date of around March 25.
- The market stayed oversold for 13 days on average, meaning we would emerge from oversold on April 10 or so.
- The SPY fell 9.59% on average when the BMI fell from 45 through oversold to the BMI's low. So yes, volatility is likely to continue a bit longer.
- It took an average of 26 calendar days for the market to bottom after the BMI's fall from 45 through oversold.
According to historical data and patterns, I would expect the market to go oversold on or about March 25, then fall an additional 5.8% or so to its bottom, which by the averages should happen on April 1.
Now, I don't want to hold Jason to a forecast from what's now nearly three weeks ago. And as he'd be the first to tell you, conditions have changed. The BMI has not gone oversold yet.
We're still hanging out at around 36% on the BMI, indicating more selling than buying. So, clearly, the BMI has not yet gone oversold and could certainly get there: 
But wiggle room aside, this should show you just how seriously we take trading the markets here at TradeSmith. We're letting data be our guide and, even as the data changes, it's leading us to very useful outcomes.
Whether the bottom is in or not, Jason will keep you updated on what the Big Money is up to right here in these pages, with a great piece on that very subject hitting your inbox tomorrow. There's more to be excited about... We're just about to kick off a new earnings season. And while last season was marked by the disappointing "beat and guide lower" trend, there's still plenty of opportunity out there.
Earnings season trading is lucrative when done well – but it's also tricky.
The earnings report is a complex situation. A company can beat estimates but guide lower, miss estimates and guide higher, or beat and guide higher with a CFO departure that tanks the stock price... or miss and guide lower with some product announcements that light the stock up green.
In other words, the odds are usually not that much better than a coin flip.
That doesn't mean you shouldn't trade them. Far from it.
It just means that if you're going to trade earnings, you need a rock-solid strategy.
And that's exactly what Andy and Landon Swan bring to the table with their Earnings Season Pass.
You've recently gotten to know Andy and Landon as they've joined TradeSmith and become part of our Platinum membership. Their specialty is consumer sentiment data, which they have a unique hold on thanks to an algorithm that scans the public web and social media for insights on how companies are performing on a brand level.
These insights led them to early calls in On Holdings (ONON), Duolingo (DUOL), and Ulta Beauty (ULTA).
And they use these same techniques in their Earnings Season Pass trading advisory... along with a special options technique that gives them a strong edge toward winning even if earnings throw a curveball.
Get this... In 2024, Andy and Landon made a total of 503 forecasts as part of their Earnings Season Pass weekly scorecard. Each of those forecasts came with an associated trade recommendation, using a variety of options strategies.
Across all those trades, the win rate was 51.7% – slightly better than a coin flip. But because of the options strategies they employed, which drastically reduced their risk and raised their odds of securing a win, the average result across all trades was 16.9%.
That's what options trading is all about – raising the odds of success with strategy. Landon recently sat down for an off-the-cuff conversation about his earnings strategy with our CEO, Keith Kaplan. I'd recommend checking it out here before the first Earnings Season Pass weekly scorecard releases this Sunday.
Landon expects major earnings surprises this season driven by the adoption of AI... even in companies you might not think of as a "tech play." Especially in those companies – because they make the best trades.
In the interview, Landon shares his top "AI Surprise" stock and explains why it's poised to continue attracting significant attention while its bigger rivals struggle.
Click here for full details on that pick... plus the Social Heat Score methodology at the heart of everything Landon and Andy bring us at TradeSmith. To your health and wealth, 
Michael Salvatore
Editor, TradeSmith Daily |
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