April 17, 2025: Interview with Wade Hansen and John Jagerson (Full Transcript)

By TradeSmith Research Team April 17, 2025

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Full Interview Transcript

Mike Burnick, Senior Analyst, Inside TradeSmith: Hi again everyone. I’m Mike Burnick, and welcome to Inside TradeSmith.

I’m very excited today to be joined by John Jagerson in the middle of your screen, and Wade Hansen to your left. You know me, I’m a handsome devil here on the other side.

These guys, John and Wade, are the dream team of analysts behind our Predictive Alpha strategy.

So, John and Wade, thanks for taking time out today with these hectic markets we’ve had to talk to our folks.

Wade Hansen, Senior Analyst, Predictive Alpha: Yeah, happy to do it.

John Jagerson, Senior Analyst, Predictive Alpha: You bet.

Mike: All right, so we’ll get to the exciting new things going on with Predictive Alpha here in just a second… but first, I’ve got to ask you to talk briefly about these crazy markets.

I mean, two weeks ago you guys warned folks, “don’t catch a falling knife,” and that proved to be great advice. I guess your crystal ball was working really well that day.

Now, recently, you compared what we’re seeing right now in the markets to sort of the Black Monday back in October ’87. We had, of course, a steep market dive. There was a lot of uncertainty or going into a recession, but of course that was followed by a 67% bull market run over the next two years.

So, do you guys think we may be following a similar pattern this time around? What’s your view?

John: Well, the common denominator there between the two periods was actually pretty good underlying fundamentals. And actually, they’re a little bit better right now than they were in 1987.

There were some issues in 1987, but it wasn’t a recession or anything like that. So we had the kinds of economic fundamentals and corporate health measures that you would not expect to create a bear market.

And you know, 1987, you could write a book about what happened there, but it is hard for the market to sustain losses when the underlying environment is actually OK.

So, you know, this is a unique situation because it’s a little bit self-inflicted, but I think that’s an important parallel. I wouldn’t want to discount it.

Mike: Yeah, Wade, what’s your take on this craziness?

Wade: Yeah, I think we’ve got a great opportunity if we can get out of our own way to let the markets come back. We had great inflation news this week, for example.

I think that got overshadowed by all the volatility that we were seeing, but the Consumer Price Index (CPI) came in at 2.4% year over year, and that was after it had bumped up to 2.8% the previous month.

And that’s exactly what everybody’s hoping to see — that inflation is coming down, that we’ve got it under control.

That is one less thing for the Fed to have to worry about, and it does clear the way that if they need to, they could lower interest rates, which the market is pricing in right now — by a full percentage interest rate cut by the end of the year.

And if that can come, that would certainly go a long way toward stimulating growth, helping the stock market, and there are a lot of companies out there that are still doing really well, that are now trading at a substantial discount from where they were just a month ago.

Mike: Yeah, that’s for sure.

And you know what, I think you got it right on the head. I mean, we’ve seen these kind of existential type threats that hit markets before.

The thing that comes to mind for me, personally, is the most recent one we had in early 2020 when we had the COVID crash.

I mean that was the swiftest bear market on record, because we went down 35 some odd percent in just six weeks.

But that was different because nobody knew what was going to happen next. It was literally a black swan event.

This though, as you said John, and you’re right, it’s kind of a self-inflicted wound this time around. So I don’t think the repercussions will last as long or be as deeply seated as we’ve seen in, you know, ’87 or the Global Financial Crisis, or even the COVID crash.

So, we shall see.

But let’s go ahead and shift gears over to Predictive Alpha for right now.

Of course, your Predictive Alpha strategy — for folks that maybe aren’t familiar — it provides price projections for thousands of individual stocks, mutual funds, ETFs, you name it.

Now, you guys have just launched a brand-new improved version of Predictive Alpha.
So tell us a little bit about the strategy and especially what’s new about it.

John: Well, previously, Predictive Alpha, it’s an AI-based predictive engine looking at a number of data points that a human being just cannot look at, to find underlying patterns and things that might provide some predictive power for the target price for a particular security.

And as AI has developed, I mean, as you know, Mike, it’s just developing at lightning speed right now, just generally speaking, but that’s also true for Predictive Alpha.

So, we’re able to do things like, as an example, we used to limit the projection to be 21 days, so we would project a likely price based on Predictive Alpha’s generative AI 21 days from now — a target and added direction.

And now we can get a lot more granular with that because all stocks are going to be different.
Some move fast, some move slow, and it can kind of optimize both the direction and target price, but also time frame, which is actually a big deal.

So, for some stocks, it might be true that the most predictive signals you can get are good at 10 days target versus others at 21, which is kind of a sweet spot for a lot of things in the market, but it might even be less than that, so it could be somewhere in between — 15 days or 8 days — so you can really optimize.

And not take such a generic approach to the upside target or the downside, as the case may be.

Mike: Right, so you guys are using two different types of AI predictive models now in the new enhanced version. Tell us about how the models differ?

Wade: Well, some, you know, we are looking at some models that are more language-based and some that are more numbers-based.

We’ve got the ability to combine the two, and I like to think of it as a great parallel to how you look at the image generation capabilities that AI has.

When it first came out, you’d say, hey, you know, “create this image of a person riding a bicycle,” and they would have a weird third leg in there, but you know, it would be a person riding on a bicycle, but it just wasn’t quite there. And now you can tell AI to generate an image, tell it what you want to have written on a sign, you can change everything about it and you can get more granular – just because it has so much more capacity to process and understand the real world, because of all the training that it has had.

And so the two models that we have now with the pattern recognition that they are able to look at and then overlay different time frames – like John was talking about – where you can get these projections not only for the one day out, two days out, 21 days out, but everything in between and see the probabilities of where those are going to be, and it keeps processing more data each day as that comes in and updates the expectations for where the stocks may be.

Mike: Right, so it’s updated as you know, new market volatility gets added to the equation.

Now another enhancement I thought was interesting that you’re adding to Predictive Alpha is the new confidence level readings, and you touched on this briefly, John. It basically means more reliable price forecasts because you’re not just sticking with 21 days now any longer, right?

John: Yeah, and also the confidence bands, what it allows you to do is to kind of match the risk of your strategy with the confidence of the projection.

So, let’s say your strategy is a fixed return, so a high probability outcome, but fixed return like selling options or something like that. Well, it might make a lot more sense to go with a very high level of confidence associated with a particular target versus just a single target, it’s that or nothing.

So, we have a range that very, very confident it’s going to hit this level, less confident up to the boundary of this confidence range.

So, a more aggressive strategy, you can orient it towards, well, I’m OK with a little bit less confidence in order to try to price the risk reward of a more aggressive position, so it is more applicable to a wider variety of strategies, particularly with options.

So those that have fixed risk all the way through to those that may have unlimited risk, and unlimited upside on the one side as well as fixed return on the other.

Mike: Right, that makes a lot of sense.

It reminds me of our proven TradeSmith Probability Of Profit (POP) metric that, of course, has been serving us well for many years – especially for options trading.

So, I guess here’s the $64,000 question for you both. Now with these extreme market swings we’ve seen from one day to the next… I mean, who knows how long it will last, but how does the Predictive Alpha algorithm go about adapting to volatility like this?

John: So, volatility is one of the inputs in the model, and it’s going to adjust so as we’re speaking, for example, volatility is really high. So, the Predictive Alpha confidence range is, on average, if you look at from stock to stock it’s going to be narrower.

So, it’s going to adapt to that market and what that means is that as traders are using discretion – or as us as analysts raising discretion deciding what to take – we have the information that we need to really be able to assess risk reward, not just generically, but for the current market environment, so it’s self-adjusting for that factor.

Mike: That’s great stuff. I mean, you’ve got to be responsive to the market these days, right? You never know what you’re gonna get when you come in and finish drinking your first cup of coffee in the morning. You can be up or down 1000 points.

Wade: Yeah, and that can all change by lunchtime depending on, you know, what gets tweeted out from the White House.

And so, you know, there are so many things out there that the model is looking to take into account, and you know, so many things that we’ve never seen in the market before.

And as it’s learning and trying to see, you know, when we have experienced volatility like this, what tends to happen next. And I think one of the concepts in the market, that even though we are experiencing unprecedented events here the past couple of weeks, is the idea of reversion to the mean, that when the markets do get really far out of whack, they are going to come back eventually.

And so, the model is looking at what factors are currently the farthest away from the mean, what adjustments are likely to be made to bring the market back into balance, and as it crunches through all that data, it’s going to help us identify as volatility does start to contract again, where the markets are most likely to end up.

Mike: Yeah, that’s a great point because, you know, the markets like anything else, they’re kind of like a pendulum. If you swing too far in one direction, you’re bound to see swing back in the other.

Predictive Alpha could take advantage of that. So that’s awesome.

Well, John and Wade, thanks again for joining me today. You know, I’m sure our folks, our TradeSmith Insiders, look forward to hearing a lot more in the days and weeks to come about the new Predictive Alpha strategy.

Thanks for joining me today, and be safe out there when it comes to your investing.