Shaky Breakout By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Why the new S&P 500 high is a mixed signal…
- There’ve been two 50-point cut starts before this…
- Don’t ignore this other all-time high…
- The freshest watchlist from Wall Street’s biggest buyers…
I may be inviting scorn from the market with this… But I can’t help but be a bit skeptical of the new all-time high. All-time highs are pretty much universally a great sign. There’s no better symbol of investor confidence. The fact that we’re seeing new highs at the other end of a “go big” 50 basis point cut from the Fed only adds to that confidence – though, whether it’s misplaced or not, only time will tell. And as we’ve shown in the past, you’d do well to only hold stocks when they’re trading at or within 5% of an all-time high. However, despite all this, the latest new high feels “heavy.” It’s carrying a load of technical weight. It’s carrying the unspoken admission by the Fed that they were behind the curve with rate cuts. And it’s carrying the fact that, in the background, other traditional “risk off” assets are performing well. Just look at this chart of the S&P 500 ETF (SPY) to see what I mean… 
First off, we’re looking at a decidedly bullish pattern here. The S&P 500 just broke out of an ascending triangle pattern. Higher lows and a similar resistance at the highs – textbook. But look at how the breakout has taken place. For each of the past three days, the market has closed lower than where it opened. And the Sept. 19 daily candle, in particular, is what we call a “long-legged doji.” Dojis refer to when the closing price of a candle is virtually the same as the opening price. But a long-legged doji refers to when the intraday price action – that is, the “wicks” of the candle in either direction – is more broad. What it suggests is indecision about the future market price. And we see similar indecision the previous day, where stocks closed lower after the Fed announcement, after opening higher from the overnight session. It’s normal for prices to retest the former resistance after a breakout, which may be all this is. We just can’t forget that, historically, the next six trading days have some of the worst returns all year. - Remember also that the 50-point cut is not a great omen…
Jason Bodner showed you earlier this week that the market actually tends to perform better when the Fed starts out a cutting cycle more slowly. To recap, Jason found the average gain a year after the Fed starts cutting rates slowly – in 25-point increments – is 24.4%. But with a fast start to a cutting cycle, it’s 5.2% – a tiny fraction (one-fifth) of the gains you see in a slower cycle. (Though the second year after the start of a cutting cycle, faster paces outperform by 10.9% vs. 6.1% for slower paces.) It makes sense. Faster rate cuts imply not so subtly that the Fed feels it needs to move quickly to ease financial conditions. It’s trying to keep the labor market from getting worse, and isn’t dissuaded by the recent inflation data coming in over par. We should also remember that the Fed has cut rates at this pace only three times in the past. - In January 2001, when the tech bubble began to unwind.
- In September 2007, a month after the subprime mortgage bubble blew up.
- And in March 2020, when pandemic panic struck the markets.
In other words, 50-point cuts have previously only been used for crisis situations. Right now, we’re not in a crisis situation – at least, we don’t appear to be. There are pockets of concern. Certain low-cost retailer company earnings, like Dollar Tree and Dollar General, are coming in cold. Unemployment is slowly ticking up, enough to trigger the now-self-debunked Sahm rule. And just anecdotally, darn near every commercial I see during Thursday Night Football is taking the angle of “look how much you can get for your money.” Laundry detergent, fast food, baby care products – just about everything except for the sports betting ads are acknowledging the stretched U.S. consumer. This feeds into our theory that we’re currently in a kind of “hidden” recession which we’ve dubbed the “Recession of the Have Nots.” If you hold financial assets like stocks or real estate, you’re doing fine. But if you’re one of nearly half of Americans who don’t, you’re likely struggling. That explains how we can have a recession and a higher stock market at the same time. It’s not yet clear if this “low-key” recession will spread. But there is one clue that we should take note of… - Gold and silver prices are also charting new highs…
Adding to their already strong lead on stocks this year. It isn’t the sort of thing that makes the mainstream media headlines, but both gold and silver prices are outperforming stocks in 2024. Silver’s up 31.6%, gold is up 27%, and the S&P 500 is up just under 20%. Just as interesting is the price action since Wednesday. As I write Friday morning, both gold and silver are up 1.8% and 2.6% respectively, with gold setting a new all-time high… and stocks are about flat. Investors don’t buy gold for anywhere close to the same reasons they buy stocks. Gold has some industrial uses, but it’s far more commonly bought as a store of stable value. You’re not getting growth or income out of it. You’re getting shelter from volatility. Gold charting new highs as the Fed eases financial conditions tells us that investors are preparing for things to get bumpier, at least in the short term. We should also note the difference between the chart of gold and that of stocks. Where stocks’ recent new highs are hard-won, gold just cruised through rising overhead resistance, tested it as support, and is surging even higher today: 
If you don’t own any gold or silver, consider adding some exposure on the new highs. - And for another strong commodity play, check out uranium…
One of the biggest news stories out Friday morning was Microsoft’s contract with New York-based energy utility Constellation Energy (CEG). Microsoft has struck a deal with Constellation to restart the Three Mile Island nuclear plant by 2028 and be the sole recipient of energy from the plant. For 20 years, Microsoft will pay a reported $800 million per year for the energy. Regular readers won’t have to guess what Microsoft plans to do with it. It’s going straight into its data centers to power its AI aspirations. We’ve been showing you the relationship between the AI megatrend and nuclear power for a long time now. AI proves to be the biggest energy-hogging tech breakthrough of the 21st century. And right now, capacity is nowhere near where it needs to be to support it. This latest deal is proof that the biggest AI players are thinking the exact same way, and scooping up energy capacity wherever they can. Nuclear, being a largely safe, clean, and efficient energy source, is the perfect fit for AI. I urge you to get some exposure to nuclear stocks to take advantage of this long-legged trend. My colleague Jonathan Rose is also a big uranium and nuclear energy bull. He’s more of a short-term trader in this regard, and he puts up great numbers. But what’s unique about him is that his subscribers have great access to him through his live chat room. There, they talk about all kinds of things outside their trading activity… uranium being one such theme. Go here to learn more about joining that community. - To wrap up, let’s check in with the Big Money…
Every week in Quantum Edge Pro, Jason Bodner’s subscribers get access to the Quantum Edge Hotlist. Think of this like peeking over the shoulder of the world’s best money managers and seeing where they’re likely allocating billions in capital. It takes a composite of fundamental quality, technical strength, and institutional-sized buying volumes to target these names. Here’s last week’s list. (Jason’s subscribers get the latest list every Monday afternoon – learn how to join them here.) 
I want to throw a light on one company that’s shown up on this list many times in the past few months – Check Point Software Technologies (CHKP). This mid-cap IT and cybersecurity company has appeared many times in the Quantum Edge Hotlist this year. And year-to-date, this stock has risen more than 27.4%, beating the broad market. Even after that run, this is a rare case of a cheap stock in the tech sector. At writing, the company trades at just 26 times earnings, where the average IT stock trades at 38.5 times earnings. The Quantum Edge Hotlist is another one of those ways TradeSmith helps you uncover hidden gem names that the market hasn’t caught onto yet. Similarly, it helps you avoid landmines. Green Plains Inc (GRPE) has also been on bottom portion of the list quite a few times in the last few months. And so far this year, the stock is down by roughly half. Like I said, Jason will have the newest list out this afternoon. If you want access to it, along with his growth-stock portfolio and regular analysis of institutional money flows, go here to learn about his strategy and get involved. To your health and wealth,  Michael Salvatore
Editor, TradeSmith P.S. Recently, the analysts at our corporate partner InvestorPlace ran their track records through TradeSmith’s software. And what they found was… more potential outperformance. In other words, if they’d taken the very same investing ideas and timed the trades using TradeSmith, the gains would have been even better. And the timing for this discovery couldn’t be better. Due to a strange confluence of factors, very much related to the Federal Reserve’s policy announcement this week, a lot of analysts fear America’s economy and markets may be headed for dark times. Eric Fry, InvestorPlace’s global macro expert, is among them. But he’ll be the first to tell you that those dark times can be avoided by following the precise signals our software provides. In his next presentation tomorrow, Tuesday, Sept. 24 at 8 p.m. Eastern, you’ll learn why Eric thinks this… and how TradeSmith’s software would’ve improved not only his strategies, but that of Louis Navellier and Luke Lango, too. Eric’s talk is free and open to the public; click here to reserve your spot now while they’re still available. | 
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