What Trump Didn’t Do on Day 1 By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Why I’m bearish on alcohol for the next few months…
- How new ideas lead us to data, and then trades…
- An update on a reader-favorite strategy…
- What Trump didn’t do on Day 1…
- The bitcoin breakout was legit…
- And why the next 100 days are so enticing for this expert trader…
For many folks, the year starts with a healthy tradition… It’s called Dry January. The idea is you don’t drink alcohol from New Year’s Eve until February. You kick the year off with a healthy start and a little test of your willpower. I’ve personally pulled this off for the past three years. And I’m starting to notice more people join in. At a soccer match on Saturday, there wasn’t a single frosty one to be found among our 10-person group, many of them explicitly participating and happy to talk about it. (You got me… I caved with a glass of wine at dinner last night with some good friends I don’t get to see often… But I’ll add a day in February to make up for it.) Anecdotes aside, the data suggests a growing interest in the trend. Going back to 2004, Google searches for “Dry January” have consistently risen, with a big spike over the last two years and a projection for one just as big this year. 
This trend got me thinking about a particular area of the sin sector – alcoholic beverage companies. One has to imagine a different kind of “January effect” in which a fast-growing cohort of people abstaining for an entire month will weigh on these companies’ profits. Turns out, the price data supports this thesis even if the earnings data doesn’t. Below is our seasonality chart of the largest U.S. alcohol company by market cap, Anheuser-Busch InBev (BUD). BUD investors, over the last five years, has suffered from the Dry January effect. One especially down period hits from Jan. 6 and lasts through March 7. That period has been negative each of the past five years, with an average fall of almost -16%: 
Even more interesting is the fact that this fall has nothing really at all to do with earnings. BUD’s Q1 earnings have surprised or met estimates each of the past five years, save for Q1 of 2020 when the pandemic threw everything into disarray. It’s just one more example of markets being inefficient, driven by emotions and, just as importantly, perceptions of behavior. People sell BUD stock in the early innings of the year because they believe the Dry January trend will hurt earnings, even if it historically hasn’t during the years where the trend has been most popular. Funny as it is to say, the reality isn’t near as important as investor behavior. This isn’t limited to beer-focused BUD, either. We also see January weakness in Diageo (DEO), which is more diversified into spirits brands like Smirnoff, Captain Morgan, and Crown Royal: 
DEO shares see a steep decline in the first quarter, with two bearish periods spanning Jan. 10-30 (and down 4 out of the last 5 years for -3.43% on average) and Feb. 20 to March 7 (100% of the time for -6.38% on average). A lot of people have ideas like these… You probably have them yourself. It’s just not easy to know how to test them for viability. And so, many great ideas don’t get executed out of fear that intuition is leading us astray. TradeSmith is all about taking intuitive investment ideas and testing them with data. Sometimes the ideas work out. Sometimes they don’t. But when they do, the result is often a profitable trading strategy. A perfect example: A couple months back, TradeSmith CEO Keith Kaplan wrote you with a strategy we developed about buying stocks in sharp, temporary declines. Since then, a lot of you have written in saying you love the strategy… You made money trading the idea we shared… And you want to know when it’s coming to our Ideas product. Rest assured, it is coming. Along with a bunch of other battle-tested ideas and a refresh to Ideas in the next several weeks. Trump’s inauguration was a busy one… Looking past the ceremony itself, President Donald Trump immediately got to work with a slew of executive actions and orders that either put new agenda items into action or reversed those of the Biden administration. I won’t recount what got done here in great detail, because frankly the list is exhaustive, and a lot of it isn’t immediately investable. Labeling drug cartels as terrorists, withdrawing from the Paris climate accord and World Health Organization, establishing the Department of Government Efficiency, urging more offshore drilling and a refilling of the Strategic Petroleum Reserve – these were all largely expected. Even more interesting is the thing that didn’t appear in the initial docket, but many took for granted. Trump has yet to enact any tariffs on Mexico, Canada, or China – one of his key campaign promises. He did instruct federal agencies to explore the idea, but no specific action was part of the order. Tariffs are the single most consequential economic policy at play in the second Trump era. It affects the dollar and the rate of inflation, and has a ton of other knock-on effects down the road. Clarity on what will happen there will be big for deciding the rest of the year for markets and, really, the next four years. Another big Day 1 miss was the lack of anything about crypto. But as I write early Tuesday afternoon, the new president seems to have gotten around to it. Trump’s new Securities and Exchange Commission (SEC) chair, Mark Uyeda, is launching a new “crypto task force” aimed at providing regulatory clarity for the industry… something proponents have been clamoring for for many years, and especially over the last four as previous SEC Chair Gary Gensler was at worst openly hostile to the business and at best very unclear about where the SEC stood on digital assets. One commissioner, Hester Peirce, has been working all along to provide a fair framework, earning her the nickname “Crypto Mom,” so it was gratifying for the crypto community that Uyeda put Peirce in charge of this task force. The market celebrated the new SEC’s efforts. And it cemented the bitcoin breakout from last week as the continuation of the uptrend. As I’ve always and will continue to put forward, you should really be focusing on bitcoin. It’s the long-term survivor and the market leader of this cycle. Not to mention, its chart looks fantastic: 
Back on Monday we said that if bitcoin keeps closing above $100,000, that’s a strong sign that last week’s breakout was for real. That’s exactly what we’ve seen, with BTC charting a new high on that day’s trading. It retested the former resistance as support, and is now surging higher once again. Do your best not to get distracted by the sillier, less savory aspects of the crypto market. There’s undue risk in those areas that’s rarely worth taking at this stage of the cycle. The trend is your friend, and the trend for the time being is higher. Keep it simple with the top brass of the crypto market, and you’ll sleep better at night. The way I see it, we’ll see bitcoin prices double before the end of the year… And that might wind up being a good place for profit-taking. We’ll stay on the data and let you know, as always, what we think. To your health and wealth, 
Michael Salvatore
Editor, TradeSmith Daily P.S. Meanwhile, the next 100 days could become some of the most volatile stocks have seen in years. Whether we wind up higher or lower from now until then, master trader Jeff Clark has a plan to make a ton of money. We touched on this in our TradeSmith Daily interview on Saturday – but don’t miss Jeff’s live event today at 1 p.m. Eastern, where he’ll show you how his strategy could make them The Most Profitable 100 Days of Your Life. Jeff says he’s uncovered a pattern that could be the key to potentially doubling your money weekly during Trump’s first 100 days in office. Click here to automatically register for this free event. | 
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