It’s Power Factor Monday By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - We have to talk about UnitedHealth Group (UNH)…
- Five-day-streak stocks and what comes next…
- You should never get tired of Power Factor Mondays…
- Our experts’ “office hours” are open…
I’m sure I don’t have to tell you why UnitedHealth Group (UNH) is in the news this week… The drama is something out of a mystery serial and, frankly, more than a bit suspicious. You know how they say it’s always the spouse? Well… something tells me a few shell casings with dramatic symbolism written on them are more likely a diversion tactic than a sign of motive. That’s all I’ll say on that. Juicy as the story is, we’re here to talk markets. UnitedHealth happens to be a massive company that almost everyone owns a piece of in their 401(k). (Disclosure, I own UNH shares directly at time of writing.) My colleague Lucas Downey profiled UNH not too long ago, pointing out that its dividend issuance rate has actually outpaced the rate of health care costs over many years. The stock is up about 12% since then. But a few days ago, it was up more than 23% UNH has fallen more than 9% in two days, a massive move for an otherwise stable, half-trillion-dollar enterprise. Any imagined narrative reasons are of no concern to me. That’s a rare move. And with data, we can see just how rare it is. In the past 30 years, there’ve only been 51 times that UNH has fallen 9% in two trading days. Here’s what happened if you bought the stock after those rare occurrences and held it on various short-term timeframes: 
The odds look pretty darn good for buying UNH after such a price drop. All but the ultra-short-term see odds much better than a coin flip of the stock being positive. Look especially at the average return of a three-month holding period – 11.9% – which would put the stock right back where it was a few days ago. Or, more aggressively, look at the average winning trade of a one-month holding time, 10.8%, which would do just about the same. Nobody knows what will happen next. But it’s rare for quality stocks like this to drop so fast, and especially for reasons that I would argue have little to do with their core business… or at least won’t change anytime soon. On the flipside, let’s look at a stock that’s getting a bit too hot… If you told me one year ago that Walmart (WMT) would be one of the best-performing stocks of 2024, following a year where AI and semiconductors stole the show, I’d have thought you were crazy. (Disclosure, I own shares of WMT at time of writing.) But that’s just what’s happened. WMT is up more than 80% in 2024, currently ranked #19 in the S&P 500 for returns… putting it in the top 1% of performers for the year. And this is from a massive company, whose megastores are a stone’s throw away from any given medium-to-large city in America. A good chunk of those returns, too, have come in just the last handful of days. As I write, WMT has closed positive five days in a row, a feat it’s only accomplished 148 times in its 40-year history. Not only that, its daily Relative Strength Index (RSI) reading is up at an eye-watering 80. And that’s actually the rarer signal. That’s only happened 97 times. So let’s focus on that. Using the same framework as above, here’s the forward returns from this rare signal: 
Lordy, the absolute state of these stats. Buying WMT up here, you have to wait for three months to get odds of a positive return barely above a coin flip. The average win rate over the next five trading days is positive less than a fifth of the time. On studies like these, I rarely see the average return column red, but that’s what we get not only after five days but also 21 trading days. My point is, the data suggests you do NOT want to be buying WMT right now. Overbought names can get still more overbought, but at this point you’re reaching into the campfire for a fallen marshmallow. Wait for things to cool down. Every Monday is a holiday in TradeSmith Daily… We should call it Power Factor Monday. It’s the perfect way to follow up a quality breakfast or morning workout. We send you the top Power Factor stocks screened by Jason Bodner’s proprietary algorithm. Each one of them has sales and earnings growth rates that continue to stun the crowd. Each one has price momentum that exemplifies how excited investors are about these businesses. These are some of the strongest stocks in the market, full stop. And naturally, if we’re going to show you the best, we’re going to show you the worst, too. So, along with the top 10, Jason gives you the bottom 5 stocks you want nothing to do with… and if you own them, you should ditch them. Jason will send out the newest picks to his Quantum Edge Pro subscribers later today. But we can take a look at last week’s names right now: 
If you’re tired of seeing Apollo Global Management (APO), Arista Networks (ANET), and WisdomTree (WT) at the top of the list, then consider this: Do you know what’s even better than a stock getting a top-tier Power Factor score? A stock keeping a top-tier Power Factor score for weeks on end. And need we remind you that all these stocks are beating the market – not just year-to-date, but over the past month: 
Is there some volatility involved? Of course. That’s the price you pay for holding most individual stocks. But, boy, is that volatility worth it when you look back at a banner year of performance for the broad market and find you still beat the pants off it. Here’s a fun stat: Jason recently told me that after this crazy-good year for his system, the long-term outperformance of Quantum Edge against the market has grown from 6-to-1 to 7-to-1. That’s looking at data from 1990 through now. This year alone, Quantum Edge stocks raised the bar that much higher. As I said before, the names at the bottom of the list are hardly worth mentioning. Only that if you own them, you should consider changing that relationship pronto. And if you want first access to this list – as well as a curated model portfolio of the top Power Factor stocks – consider joining Jason in Quantum Edge Pro. Details here. This week is very special… Quick programming note: Tomorrow I’m hopping on a plane and heading to Baltimore. There I’ll be gathering not just with the wonderful minds that make up TradeSmith’s team like Keith Kaplan, Mike Burnick, Jason Bodner, John Jagerson, and many more… But also the experts that make up all of our extended network… including the fine folks from InvestorPlace, Masters in Trading, the Freeport Society, Derby City Insights, and Jeff Clark Trader. The amount of raw talent and financial expertise in the room will be overwhelming. We did something similar close to a year ago, and our network has only grown since then. And I’ll have boots on the ground to pick up the latest and greatest ideas. To that end, I offer you a rare opportunity: If you were in attendance, who would you want to talk to, and what would you ask? Would you ask Jason about his favorite under-loved Power Factor stock? Luke Lango about what he sees for the tech and growth landscape for 2025? Charles Sizemore about under-the-radar plays for a new Trump term? Jonathan Rose about the best way to trade the dichotomy between small caps and tech? Office hours are open, and I’m your liaison. Send along your questions to me at feedback@TradeSmithDaily.com. I’ll pass them along, and I’ll publish a select few in a near-future dispatch. To your health and wealth,  Michael Salvatore
Editor, TradeSmith Daily P.S.Speaking of Luke Lango, he clued us in to some data suggesting there could be several “flash crashes” in 2025. Hardly a year goes by when we don’t get a flash crash, sadly… but Luke has compelling research that points to violent crashes becoming the norm moving forward. If he’s right, then millions of investors need to rethink how they make money in the markets. And Luke’s team has a strategy to help you do just that – by getting you in front of big winners roughly every 30 days. This is the Auspex strategy we’ve mentioned here in TradeSmith Daily the past few days. Auspex is fresh off a five-month streak of beating the S&P 500. And looking further back, its 20-year backtest shows the strategy outperforming 29-to-1. When you chart it out, it makes even the S&P 500’s huge cumulative growth during that time look like a blip, especially these last few years: 
This Wednesday, Dec. 11, Luke is making this strategy available to a wider audience for the first time. He’ll even reveal the name and ticker symbol of a stock he used Auspex to uncover during his event. Click here to save your seat while they’re still available. | 
No comments:
Post a Comment