The Market’s Most Resilient Stocks Are Not What You’d Guess VIEW IN BROWSER By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Every major market index is flashing caution or a sell signal – except one
- Rate-cut odds just jumped from 5% to 25%, and small caps are already responding
- Our AI forecasting model’s top bullish bets are clustered in two sectors
Relief on Wall Street… Yesterday, the S&P 500 closed up 2.9% – its biggest move of the year and the third-largest daily gain of the last 12 months. The top two? The 9.5% jump on April 9, 2025, the week after the Liberation Day crash… and the 3.3% gain the month after that on May 12. President Trump says the U.S. will end its war with Iran in “two or three weeks,” even without a full reopening of the Strait of Hormuz. Traders took that as a reason to hit the buy button. We’re enjoying the celebration just as much as anyone who owns stocks. But one good day in the market doesn’t change the trend we’ve been following for months… Software companies – as tracked by the iShares Expanded Tech-Software Sector ETF (IGV) – have lost more than 20% year to date. Even with a potential U.S. exit from Iran, oil is still over $100 a barrel. And if the Iranians don’t open the Strait, it’s hard to see it heading lower anytime soon. And besides all this, we’re seeing bearish signals across most of the major U.S. indexes we track… with a few notable exceptions. That exception is our focus today. | Recommended Link | | | | Elon Musk recently held an all-hands meeting at his closely guarded AI lab. He told employees… “We’re moving faster than any other company. No one’s even close.” Why? Because Elon built an AI breakthrough that would take most tech CEOs four years to set up. He brought it online this year… and as early as today, April 1… Elon’s going to crank it to full blast. And potentially make ChatGPT, Claude, Gemini, and DeepSeek obsolete… While unleashing a brand-new 7,000% growth market. But here’s the twist. Neither Tesla nor SpaceX is the best way to play this opportunity. Instead, you’ll want to own the firm that controls over 38,000 patents on the technology (not semiconductors) that will power Elon’s career-defining vision. Click here for its name and ticker symbol. |  | | Take note which major indexes are holding – or back – in the Green… TradeSmith tracks two health indicators for stocks and indexes: Long-Term Health and Short-Term Health. Think of them as the same instrument tuned to two different pitches. Long-Term Health tracks a stock’s price action against its long-term historical volatility. Then it flags when it sees abnormal volatility spikes – the kind that tend to precede major trend shifts. It’s designed for buy-and-hold investors who think in years, not months or weeks. When it flashes Red, the long-term trend has broken down. When it flashes Green, a new long-term uptrend has begun. And Yellow is a caution zone – it means to keep a close eye on things. Short-Term Health works the same way but looks back at only a handful of months instead of a stock’s entire trading history. That makes it faster to react to early-stage trend shifts – and better suited for positions held over months, not years or decades. Green still means buy, Yellow caution, and Red sell. Together, they give you a two-timeframe read. - Is the long-term uptrend still intact?
- Is near-term momentum building or breaking down?
Right now, that two-timeframe read on the market is bearish in most key areas. But in one sector, it’s held firmly Green… and yesterday’s price action brought new life into several more. Here are the Long- and Short-Term Health statuses on every major market index we track: 
The tech-filled Nasdaq 100 has been in a Short-Term Health Red Zone since early March – its first sell signal since just before the Liberation Day crash. The S&P 500, the Dow, and the Russell 2000 are also all in Red on Short-Term Health. The Dow is in a Long-Term Health Red Zone, too – a signal we highlighted in Monday’s issue that has only fired twice before in recent years: ahead of the Liberation Day crash and at the start of the 2022 bear market. Japan, Canada, and Britain are in Yellow Zones on Short-Term Health. Australia just flipped Red on that same measure, and Hong Kong’s Hang Seng index flipped Red a few weeks back. Overall, the picture across global markets is not encouraging in the short term. And many of these same indexes are Red or Yellow on Long-Term Health, too. And yet – one index has held Green on Long-Term Health for the past 10 months – the S&P 600. That’s the small-cap index of 600 U.S. companies with market caps between roughly $1.2 billion and $8 billion. And in yesterday’s trading, we also saw Green signals in the small-cap Russell 2000, the mid-cap S&P 400, and the Russell 1000. These green lights are, for now, mostly in smaller companies. And the reason it’s still on connects directly to what happened in interest rate markets over the past week. Wall Street has shifted its expectations for interest rate cuts… In Monday’s issue, we walked you through why unprofitable small caps had become one of the most at-risk corners of the market as rate-cut hopes evaporated. When rates stay high – or are seen as heading higher – smaller companies with weak balance sheets feel the pain first. That’s because smaller, unprofitable companies depend on cheap borrowing to fund their operations. Unlike large blue-chip companies, they usually can’t lock in long-term fixed rates or issue bonds on favorable terms. So when rates stay high, their borrowing costs climb – and keep climbing. For a company that’s already losing money, that can be an existential threat. A week ago, the CME FedWatch Tool – a gauge of where traders expect the Fed to set interest at future meetings – was pricing in a 22.5% chance of a rate hike and just a 5% chance of a rate cut at the year-end December meeting. Yesterday’s relief rally changed that. As the White House signaled movement toward ending the Iran war, oil prices pulled back, and traders started rolling back their rate-hike bets. As of this morning, the FedWatch Tool shows a 25.3% chance of at least one rate cut by the December 2026 Fed meeting – up from 5% just a week ago. The odds of a hike have dropped sharply from 18.5% to 0.3%. That shift matters for small caps more than almost any other corner of the market. Smaller companies tend to carry more short-term debt than their large-cap counterparts. Those loan interest payments rise and fall directly with the Fed’s benchmark rate. So when rates drop, so does the cost of staying in business. That means when rates fall – or even when traders start betting on falling rates – those companies get an immediate tailwind in their stock prices. That’s likely part of the reason the S&P 600 has stayed green while everything else has been selling off. As you’ll see in the chart below, the S&P 600 is just above flat this year while the major large-cap indexes are all in the red. 
But not all small caps are created equal. As we showed on Monday, the profitable ones are holding up best. And the S&P 600 – the index that’s held its Long-Term Health Green status through the volatility this year – is unique in that it only allows new listings from profitable small companies. The screener below shows five profitable S&P 600 stocks that flashed new Long-Term Health Green signals in just the past day, along with their price-to-earnings (P/E) ratios. (More than two dozen stocks in the index saw new Green signals yesterday, and if you subscribe to our Screener tool, you can easily find those.): 
The pattern reinforces what we said Monday: When rates are uncertain and the market is under pressure, profitable small caps are where the resilience is. Here we see Primoris Services (PRIM), an engineering and construction firm… Signet Jewelers (SIG), a specialty jewelry retailer… Ryman Hospitality Properties (RHP), a convention center resort REIT… CarMax (KMX), the country’s largest used-car dealer… and PTC Therapeutics (PTCT), a rare-disease biotech. Every one of them is profitable, and every one just flashed a new Long-Term Health Green signal. If you’re looking for new ideas in this market, this list is a good place to start. To building wealth beyond measure, 
Michael Salvatore
Editor, TradeSmith Daily | 
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