The Only AI Killer App Worth Talking About

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The stomach-turning reality of AI “friends”… AI’s true killer app you need to focus on… Gold and silver quietly rally faster than stocks… Why that’s a market buy signal… The tech stocks on a win streak and what happens next… The expiration date of the bull market is well known… What you need to watch… A special conversation airing tomorrow afternoon…

❖ This might not be on your radar, but it sure caught my attention…

Scrolling my X feed on Tuesday, a splashy launch video for a new AI product caught my eye… then turned my stomach.

It’s called the Friend. I can’t decide if it’s a dystopian, Black Mirror-esque waking nightmare or a true “killer app” for consumer AI that I just don’t yet get.

In the opening scene of the ad, a woman hiking alone catches her breath at a hilltop, celebrates the climb to herself… and then touches a button on a plastic medallion hanging from her neck and talks to her AI “Friend.” (Watch the launch ad here, then write [email protected] and let us know what you think.)

This is Silicon Valley’s next shot at a consumer-level AI device – like Humane’s AI Pin and the Rabbit R1. Those two devices had different goals and scope, but both failed to take off.

The Friend is probably the simplest product so far. You wear it around your neck and it’s always listening. By pressing and holding a button, you can send the AI a voice message… and it sends you a text-message response after considering the context of everything else it hears.

It can also text you without input, using what’s creepily described on the website as “free will”…

The company also claims that the data is strictly private. So much so, there’s no backup option if you lose or break your device – kind of like real friends.

❖ Stuff like this will grace the front pages, but don’t miss the bigger AI picture…

If this finds a market and helps a few folks feel less lonely – especially older folks in retirement homes, decidedly not the cohort shown in the ad – I say great.

But from what we see, this is likely not where the bulk of AI investment capital is headed. There are far more exciting and important things at hand.

As we wrote many months ago, far and away the most important application of AI is digital twin testing.

This is using AI to simulate nearly endless permutations of a set of variables to more quickly and efficiently test ideas.

Here’s an example of digital twins being used to train self-driving-car software in the Nvidia “Omniverse”:

This simulated environment lets self-driving-software developers test wildly varying scenarios that a driver might encounter, with no real-world risk.

It hardly stops here. Everything from fighter jets to factory layouts, to life-saving medications can benefit from this simulated digital twin testing. And that latter application may be the fastest approaching.

Few investors are looking far enough ahead to consider the applications of AI to the field of biotech and healthcare. But we can count Eric Fry, senior analyst at our corporate partner InvestorPlace, among them.

Eric made a splash at our annual ideation summit back in February for claiming that the biotech and health care field – not the traditional consumer tech companies – will be the biggest winners of the AI trend. A few weeks later, I caught up with him for an exclusive interview to discuss his thinking, which you can check out here.

And finally, the mainstream is catching up to the idea. A recent issue of ScienceDirect highlighted three huge benefits to AI in health care, among others:

• Drug discovery and development: AI can analyze large amounts of data to identify patterns and relationships that may not be apparent to humans. This can be used to help identify new drugs and drug targets, as well as to optimize existing therapies.
• Personalized medicine: AI can analyze a patient’s health data, including genomics, to develop personalized treatment plans. This includes the use of machine learning algorithms to predict how they’d respond to a particular treatment and to identify potential adverse reactions.
• Diagnostics and disease prediction: AI can analyze data from various sources, such as electronic health records and wearable devices, to identify patterns and correlations that may point to a particular disease. This could provide more accurate diagnoses and enable earlier interventions to prevent diseases from progressing.

In short, the future of AI in health care is growing clearer. And Eric, being one of the first to the idea, has already set up his subscribers to ride the trend from a great starting position.

If you’re not already, be sure to follow Eric Fry’s research – you can do so for free by signing up here for his e-letter, Smart Money.

❖ Two market outperformers to keep a close eye on…

Here’s a surprising fact… gold and silver are both beating the S&P 500 this year. And it’s not just because of the recent correction.

The outperformance started back in April and, setting aside a brief period where stocks beat gold, it’s continued through to today.

This struck us as a somewhat rare event. And when we recognize rare events, we can’t help but study them.

We went back and isolated all the times that gold and silver both outperformed the market on a 7-month period, then looked at what happened for all three assets over the next three months.

You might think gold and silver are the better bet after an outperformance like this. But depending on your risk appetite, that may not be the case.

There have been 51 instances of the SPDR Gold Shares ETF (GLD) and the iShares Silver Trust (SLV) both outperforming the SPDR S&P 500 ETF (SPY) for a 7-month period over the past 18 years (that’s as long as SLV has been trading).

1. Three months later, the S&P 500 has been positive 76.5% of the time… and the average win was 5.3%. Counting wins and losses, the average trade was 2.4%.
2. Gold was higher just 55% of the time after these rare occurrences… but with a higher average win of 6.3% and an average overall result of 1.5%.
3. For silver you saw another 55% win rate, but a much higher 13.3% average gain… and 2.5% returns on average.
4. If you were to buy both gold AND silver in equal measure, you could have averaged out your returns to 9.8% winners and 2% overall.

So, what we have here is much a higher-odds, but lower-returns bet on stocks going forward… Or a lower-odds, higher-returns bet on precious metals.

The beauty of this trade is you couldn’t really go wrong with either asset class since both were higher three months on.

To take advantage of either one now, you can try buying some call options at a strike price that corresponds to the average winning gain for each asset. Looking at SPY, for example, that would mean buying the $575 call option expiring at the end of October.

For the higher-risk gold and silver, you could even simultaneously sellsome call options, too; the spread would offset your risk and cap your gains.

If you’re picking one trade, though, pick stocks. A 76.5% win rate is a far stronger signal.

❖ These big tech stocks are on a hot streak…

As we showed you on Wednesday, the small-cap catch-up trade has been fierce. Chatter about interest rate cuts has gotten louder, lighting a fire under small-caps that brought them within inches of overtaking tech stocks for the year.

That rally has since cooled, with large-caps recovering and small-caps waffling around a bit.

But you have to understand that hidden in every benchmark are outliers – stocks that are continuing to rally despite the overall index dragging lower.

These momentum leaders are important to watch. While the benchmarks might be chopping right now, certain stocks beneath the surface keep moving higher.

Using our data, I isolated three stocks in the Nasdaq 100 that have closed up six trading days in a row – that’s from 7/24 to 7/31. These are the current highest win streaks in the index.

Those stocks are:

• Cisco Systems (CSCO)
• Illumina Inc. (ILMN)
• Kraft-Heinz Company (KHC)

Then, I went back and tested to see how each of these stocks performed in the past after similar up-streaks. Here’s what I found…

Since 1991, if you bought CSCO stock after a 6-day up-streak (like it’s on now) and then held it for 21 trading days, you’d be looking at an average gain of 1.9% and a win rate of 58.1% out of 62 cases. When you see a winning gain, it’s an average of 8.6%.

That’s a pretty tradable edge, but let’s look at the others too…

ILMN hasn’t been around for quite as long, with this specific up-streak only happening 36 times since it went public in July 2000. When it does, it puts out higher average returns at 3%… with a 52.7% win rate. Winning trades, however, really bring the juice at 16.6%.

This signal is rarest in KHC. It’s only happened 15 times since 1991. But of those times, KHC was a winner 60% of the time. The average winning gain was 3.8%. Though, the average total gain was just 0.67%.

These are a good few ideas to take a look at. But the main takeaway here is that winners tend to keep winning, even when they do so in the very short term.

Also, as I write on Thursday morning, stocks are taking a bath, and CSCO and KHC are down. So if you like any of these trades, you can potentially get into them at better prices by the time you read this.

❖ Every bull market has an expiration date…

That’s not as bold a statement as it might sound. It’s about as dramatic as saying every container of cottage cheese has an expiration date.

The difference, of course, is that most investors have no idea when a bull market could end. It’s a fine line between a correction and a bear market… and often, the difference isn’t obvious until it’s far too late to have made the right move.

This might be the most difficult problem in investing. And TradeSmith, being the problem-solving kind of firm it is, has accepted the challenge.

One of our most important innovations is the bullseye and bearseye indicators. These two signals only flash under strict criteria. And when they do, you can be confident a bull or bear market has begun.

Keith Kaplan discussed these indicators in detail earlier this week. They use our fine-tuned algorithms to gauge the health of the market. If the benchmarks are falling but the components are strong, we don’t necessarily get a signal. But if we see rapidly changing conditions in the stocks within each index, that’s a big warning sign.

Take 2022 for instance. Our bearseye indicator flashed on the S&P 500 on May 9 – precluding a near 14% fall in stock prices.

Then just seven months later, on Jan. 6, 2023, the bullseye indicator flashed. Since then, stocks are up nearly 41%.

These indicators show you the expiration dates for bull and bear markets in real time. Our subscribers get them straight to their inbox as soon as we see them.

And that’s not all they can do.

As Keith recently showed in this presentation with MarketWise CEO Porter Stansberry, similar tools can be applied to individual stocks. With them, you can easily determine when to take profits on a winning position or bail on a loser.

In fact, had Porter used these tools in his long-running Stansberry Investment Advisory newsletter, which more than doubled the market’s return… his subscribers could have done more than double even that stellar performance.

Keith recently opened up membership to one of our most popular software bundles, Trade360. It includes these tools and many more.

With stocks set to be volatile through November, it’s not impossible to imagine we’ll see another bearseye signal. If that happens, and you’re a Trade360 member, you’ll be the first to know.

I’d urge you to listen to Keith and Porter’s conversation here and draw your own conclusions. From where we sit, the market looks tenuous. The excesses of the first half could give way to pain in the second. If you don’t want to give up those profits, you need to be alerted once Trade360 triggers the bearseye, and the bull market’s on its way out. Go here to learn more.

To your health and wealth,

Michael Salvatore
Editor, TradeSmith

P.S. As we’ve been telling you, right now we’re witnessing a “Great Portfolio Equalizer.”

Large-cap dominance is finally faltering, giving small-cap stocks their time to shine.

So, I brought together two of our senior analysts, Jason Bodner and Mike Burnick, for an interview to get their latest take on this…

And they soon began rattling off their favorite sectors where investors can find value – and thus maximize their profits in this great rotation.

I even put them on the spot to see what they thought the next 10% move in the S&P 500 will be: higher or lower?

You’ll hear their answers to that and more in the next TradeSmith Daily, set to hit your inbox tomorrow afternoon. Watch that interview tomorrow for a fun discussion of what Bodner and Burnick’s research is turning up now.