These AI Anomalies Appear Weeks Ahead of Big Stock Moves

By Michael Salvatore

Listen to the audio version of this article (generated by AI).

 

In This Digest: 

  • Thanks to the 1,873 folks who joined for our 30-Day Wealth Accelerator event  
  • Our analytics say now is a great time to buy options 
  • The smart money is targeting this S&P 500 fast-food stock 

If you showed up for this morning’s launch event, a big thanks… 

More than 1,800 of your fellow readers joined our CEO, Keith Kaplan, as he pulled back the curtain on our new Smart Money Edge tool. 

It’s an AI-powered scanner that watches the options market – where hedge funds and other well-connected investors take large positions in stocks – and flags anomalous activity, sometimes weeks before a stock-moving headline breaks.  

In our testing, it flagged Chinese tech giant Alibaba (BABA) while the stock crashed on delisting fears five days before a U.S.-China regulatory deal sent shares up 36%. 

It also spotted Madrigal Pharmaceuticals (MDGL) three days before a clinical-trial breakthrough sent shares up more than 200%.  

And it flagged fiber-optic telecom Lumen Technologies (LUMN) – when the stock was trading for about $1 – two days before a partnership with Microsoft took it to $6.  

And across a backtest spanning February 2022 to April 2024, the new system was right three out of every four times it flagged a trade – a 75% backtested accuracy rate.  

And the average return on all backtested trades in that window – including the losers – was 13.7%. 

Keith closed today’s session by pulling up the three stocks it’s flagging now. Each has strong potential to make a big move in the next 30 days. 

If you didn’t catch those three tickers, you can get them – along with the full story of this latest breakthrough – by going here. 

Smart Money Edge isn’t the only upgrade we’ve made… 

We’ve added it to our Options360 software suite alongside a new dashboard and a stack of new tools – a done-for-you daily list of stocks showing unusual options activity, a “Best Trade Opportunities” report every Monday, and a suite of analytics that tell you not just what to trade, but when and how. 

The new Options360 dashboard is full of analytics tools to help you know what options trading strategy to use at any given time. 

One I’ve been using a lot is our Implied Volatility Rank tool: 

Implied volatility is the market’s estimate of how much a stock is likely to move in the near future. When it climbs, traders are bracing for bigger swings – and options get more expensive. When it falls, options get cheaper. 

In short, it’s a way to gauge how nervous investors are at any given time. 

The IV Rank tool measures where today’s level of nervousness sits compared to where it’s been over the past year, scoring on a 0-100 scale.  

A 100 means volatility is at its highest point of the past year – and 0 means it’s at its lowest.  

Unlike Wall Street’s more famous “fear gauge,” the VIX – which gives one reading for the S&P 500 (SPY) – you can calculate an IV Rank for different stocks and indexes. 

Right now, the IV Rank for the S&P 500 ETF is 14. That means it costs less to buy options contracts. So it’s a good time to buy options on SPY. 

Now let’s look at the Market Stance tool: 

This brings together our proprietary trend measures across the S&P 500, the tech-dominated Nasdaq-100 (QQQ), and the small-cap Russell 2000 ETF (IWM).  

As you can see, the market is not in firm agreement. The S&P 500 and small caps are in uptrends, while tech is choppy. 

Relatively low volatility and a strong uptrend mean now’s a great time to buy options on S&P 500 stocks.  

That helps us further hone how we use the Smart Money Edge to our advantage. 

Check out this trade on S&P 500 stock Chipotle Mexican Grill (CMG): 

Smart Money Edge flagged it as a bullish options trade as of yesterday’s close. And based on the indicators lighting up in the underlying stock, odds favor that trade working out. 

Here’s one of my favorite premium-level tools – available to our Platinum tier members. It shows how CMG is faring based on our Health indicators, its seasonality patterns, and its Predictive Alpha forecast. 

CMG is in Short- and Long-Term Health Green Zones – meaning it’s in a healthy uptrend.  

Seasonality for CMG is bearish from Sept. 21 to Nov. 2. That means a few days before the option’s expiration date of Sept. 25 may be the best profit-taking window. 

And our AI-powered engine, Predictive Alpha, forecasts a 3.4% gain by Sept. 18. 

If CMG saw that gain by the option expiration date, the option value would rise by about 64%.  

That’s how Options360 helps you tackle the options market with confidence – starting out broad with the state of the market indexes and then drilling down to find the best opportunities. 

To learn more about these new tools, along with three free trade ideas from Keith, watch the 30-Day Wealth Accelerator launch event here. 

To building wealth beyond measure, 

Michael Salvatore 
Editor, TradeSmith Daily