A Painful Disturbance, and Then… By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Another fearful headline, right on cue…
- GDPNow’s spotty, but not useless track record…
- No matter what, a bounce is up next…
- What’s happening with bitcoin?
- Why Andy and Landon Swan see a 10x long-run return…
- Why has Nvidia been so quiet on this “dark horse” tech?
Yet another Big Scary Number™ hits the tape… It seems every week here in TradeSmith Daily, I get some opportunity to pit a fearful mainstream media narrative against the data-driven, not-so-scary reality. And the cases just get more and more dramatic… I’ll admit that my piece two weeks back, about Warren Buffett’s cash hoard – useful as it was for understanding important context – did basically ring the bell at the (local) top of the market. But the good news, as we’ll get to later today, is that we’re likely to see new highs in the market within the next three months… Speaking of three months, let’s talk about quarterly GDP, and more specifically a dramatic GDPNow estimate out of the Atlanta Federal Reserve. It made headlines this week for its new estimate that GDP would contract by -2.8% in the next quarter. As ever, context: - The week before, GDPNow estimated growth of 2.3%
- Why the change? New data showing a record trade deficit as companies tried to get ahead of tariffs…
- And a resulting high PMI (Purchasing Managers Index) print, which suggests inflation.
Here’s the breakdown of how each data released influenced the GDPNow estimate over time. All was gravy for the first quarter until Feb. 28: 
Source: Federal Reserve Bank of Atlanta So, this number is volatile, and changes weekly. And it’s important to understand it usually only makes the news when there’s a nice, dramatic, Biggest Ever™-style number to talk about. But let’s set all that aside… And, as we did with Buffett’s cash hoard, we’ll look at the history of GDPNow estimates vs. GDP on an annual change basis. An eyeball at this chart shows some interesting stuff. For one, GDPNow estimates have been bang-on accurate exactly one time, in Q3 2011… the very first of these estimates to ever be reported. Beginner’s luck? 
Since that very first banger, though, GDPNow has most often underestimated GDP expansions, sometimes by multiples… greatly overestimated contractions… or otherwise overestimated recoveries. The pandemic is the best example of the latter two, but I won’t hold anyone at the Atlanta Fed to the insanity of those times. Regardless, there have been four substantially negative GDPNow estimates: - Q4 2019, which was incorrect, though arguably correct with a quarterly lag… but obviously not for the right reasons.
- Q1 2020 which, while not wrong, was… let’s just say a little excessive at -32% vs. the actual -6.8%
- Q2 2022, which did precede some slowing growth but not contraction.
- And now.
I’m not going to say with 100% certainty that GDP will not contract next quarter. But I will say it’s unlikely. That was a pretty wild swing in the opposite direction from last week’s expectation on the basis of just two data points, important as they were. I’m also not going to say there’s no value in GDPNow estimates. Because, while volatile, they do tend to trend in the same direction as GDP itself, with a quarterly-ish lead. Ultimately, I write this to temper your doomsday expectations. GDP is likely to soften in the coming quarters, but an outright shrink seems unlikely. A funny thing about technical indicators and news… For weeks now, the air has been thick with fears of tariffs. Tariffs are touted as a great upheaval to the economic world order – an exchange of short-term pain for long-term gain where the ultimate goal may be to devalue the dollar and boost U.S. manufacturing… In the background of it all is a big bet that American exceptionalism can endure such a disruptive plan. This is the so-called Mar-a-Lago accord you’ve been hearing about… and will be hearing about a lot more going forward. It’s the reason President Donald Trump himself made the rare admission during his non-State of the Union address that we could face a short-term, painful disturbance as the first steps play out. More on this major theme in the issues to come. Today, however, let’s stay on price action. All this uncertainty (investors’ kryptonite) sent the Nasdaq 100 – the highest of high-flying tech groups – down about 9% from the all-time high set in late February. The price action has put the Nasdaq right up against a major line in the sand for any asset: the 200-day moving average (200DMA). Yesterday, my colleague Lucas Downey wrote about how the Nasdaq 100 tends to perform when it closes below the 200DMA on a weekly basis. Spoilers: During bull markets like right now, it’s usually a pretty great time to buy. And what do we see today but the Nasdaq 100 ETF (QQQ) crossing below the 200DMA after yesterday’s bounce from the level (blue line below)… along with positive divergence on the Relative Strength Index (RSI, purple shading below): 
On Tuesday, the Nasdaq traded below the 200DMA intraday, then recovered. On Wednesday, it initially traded down to just a hair under the 200DMA, then closed higher. On Thursday, it’s currently trading just below the 200DMA once again. Today, bulls want to see QQQ trade above the line before the weekly close, around $492 at minimum. Though we should remember, Lucas’ study shows us closing below the 200DMA is not a death knell – quite the opposite. But let’s zoom in a bit and focus on the RSI. Here’s the four-hour chart: 
Bulls needs to step in here, no doubt. Good news is, the momentum suggests that’s exactly what they’re doing. The RSI is making higher highs while the price makes lower lows. That’s a telltale sign of waning downside momentum, and suggests a bottom is near. Now, here’s the funny thing I promised… What do we find on the front page of Bloomberg? Another can-kicking of the tariff problem out another month. President Donald Trump is likely to defer his 25% tariffs on Canada and Mexico for all goods and services covered by the North American trade agreement known as USMCA, Commerce Secretary Howard Lutnick said, a potentially major reprieve for the U.S.’s two largest trading partners. Trump will decide Thursday on the scope of a one-month exemption on 25% tariffs imposed this month[.] […] That exemption would last until April 2, when Trump expects to enact a fresh round of tariffs, including “reciprocal” duties on countries around the world and sector-specific ones, like on auto, pharmaceutical, and semiconductor imports. The first fight was fun. This fight was even more fun. Let’s do it again in 30 days. But until then: Lutnick said he and Trump would speak with their Mexican counterparts later Thursday and that both Mexico and Canada “offered us an enormous amount of work on fentanyl.” The president has tied the tariffs, as well as a 20% duty on China, to the flow of illicit fentanyl and migration into the U.S. Trump earlier spoke with Canadian Prime Minister Justin Trudeau. The U.S. president previously offered a one-month exemption to automobiles covered by USMCA, and administration officials were considering exempting certain agricultural imports. Tariffs are likely to remain a constant presence in the months and years to come. But these concessions, expertly timed at market bottoms, are just as likely to show up as well. Don’t forget that we’re in a young, strong bull market. Those don’t tend to end when everyone expects them to. Remember, too, the Mega Melt-Up thesis we’ve been pounding the table on the past few weeks. Wild cards aside, there’s evidence abound that we’re in the type of market we haven’t yet seen in the 21st century. History will look kindly on those who don’t get shaken out here. But what about bitcoin? Regular readers might have noticed I’m pretty mum on bitcoin lately. Have I thrown in the towel? Not even a little. Bitcoin is down 17% from the all-time high. That’s obviously painful for anyone buying around those levels. It’s even a bit painful for those buying at what previously looked like great levels, around $90,000. But when you look at the technical picture, you find that bitcoin has actually held up better than stocks on a relative volatility basis. It tested its 200DMA twice (blue line below), with lots of buyers stepping in on those flushes. It’s riding a trend line that’s acted as both support and resistance going back to July: 
Though here, too, bulls need to step in – in a big way. There’s now a falling resistance line at around the $97,000 level, not far off from the 50-day moving average. We want to see prices retake that level in the next few weeks. Hopefully the first-ever White House Crypto Summit, to be held later today, will help boost bitcoin’s price. The historic event, hosted by Donald Trump and moderated by “crypto czar” David Sacks, includes some of the biggest names in the U.S. crypto industry. And if the recent encouraging price action in bitcoin is an analog for risk appetite, we might see that same sort of appetite bleed into tech stocks as well. But there are macro reasons to be bullish on bitcoin, too… We recently covered the dynamic of M2 as a measurement of liquidity. When liquidity expands, bitcoin and other “risk-on” financial assets tend to prosper. When it shrinks, they can suffer. Andy and Landon Swan – masters of sentiment data and macro specialists in their own regard – observed something quite similar recently, in a special report to their subscribers: Milton Friedman once noted that “inflation is always and everywhere a monetary phenomenon.” In other words, when the supply of money increases faster than economic output, inflation follows – and asset prices, particularly those with fixed supply like Bitcoin (BTC), tend to react accordingly. 
Source: TradingView The chart above highlights Bitcoin and global M2 money supply, which tracks cash, checking deposits, and near-money assets. M2 measures economic liquidity and is a key signal for potential inflation. Historically, when M2 expands, Bitcoin follows – typically on about a 30-day lag. Recently, M2 dipped, and Bitcoin responded with a pullback. Now, M2 is rising again… You can see where we are going here. This setup and current pullback in the price of Bitcoin presents long-term investors with an accumulation opportunity. The monetary picture is looking good for bitcoin. And by extension, it’s looking good for stocks. Just yesterday, Andy and Landon did a special alert on two oversold growth stocks for their MegaTrends subscribers because the opportunity was just too rare to wait for the next issue. And you know what else their chart highlights for us? How quickly bitcoin tends to reach big, round milestones when it gets running. Andy and Landon have called for a $1 million bitcoin, and they went on the record about that back when some still rolled their eyes at the idea of a $100,000 bitcoin. With their finger on the pulse of a too-often-neglected market indicator – social-media sentiment – I would pay close attention to their take on this going forward in MegaTrends and elsewhere. To your health and wealth, 
Michael Salvatore
Editor, TradeSmith Daily P.S. If I told you there was a “dark horse” technological breakthrough that threatens to upend the stock market and potentially society as we know it… You might raise your hand and say, “It’s AI, duh.” Well, you’re not wrong. But at this point, that’s more like Secretariat leading the pack. Recent developments out of the biggest of Big Tech show us that a whole new era of computing is within reach. It’s something that breaks every law in the book, and threatens every layer of digital security we currently have. More strangely… The third biggest tech company in the world, Nvidia, has been pretty quiet about it. According to quantitative investing legend Louis Navellier, that changes later this month. During an upcoming presentation, which Louis has taken to calling “Q Day,” he believes Nvidia will show what it has been working on in this mind-bending computing breakthrough. And ironically, he believes that because of this announcement, the next Nvidia will be christened. It’s a company few investors have ever heard of, but the announcement to come could well put it on the map. I urge you to check out this page for more information, and stay tuned to TradeSmith Daily tomorrow and next week for details from the man himself. | 
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