Feb. 24, 2026: Interview with Jason Bodner and Lucas Downey (Full Transcript)
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Full Interview Transcript:
Mike Burnick, Inside TradeSmith: Hello, TradeSmith Insiders!
I’m Mike Burnick, your Inside TradeSmith editor, and joining me today are two very special guests. Of course, you know them very well: Jason Bodner of Quantum Edge Pro, and Lucas Downey of Alpha Signals.
Hello gentlemen. How are you today?
Jason Bodner, Quantum Edge Pro: Great. I’m doing great. Thanks.
Lucas Downey, Alpha Signals: Awesome. How are you?
Mike: I’m doing fine – and I always love getting together with you guys and talking shop as it were, seeing what you’re looking at in the market and some of the indicators and insights you can bring to us.
So, you know, let’s dive right in!
Jason, let’s start with your Big Money Index. You had written recently that it has kind of stalled out a little bit – along with the stock market, in the early going this year.
But it stalled at a high level, kind of stuck between the high 60s to, low 70s… which you’ve said is a good thing, because it means that most of the Big Money signals are still on the buy side. Is that right?
Jason: Yeah. Yeah. And I can sort of show you what that means…
So, you know, markets are like people, right? They get tired sometimes they, they, they need a rest. Sometimes they power higher, sometimes they get sick and end up in bed.
I don’t think this is the latter. I think this is the former. And I can go ahead… I’ll this share on my screen. This is data from our research firm, Lucas and my research firm, to be exact, MoneyFlows. This is the Big Money Index we’re looking at, and the important thing is this blue line up here. That’s the SPY, that’s the S&P 500 ETF.
And as you can see. It’s been really kind of sideways since October. It hasn’t really gained much ground or done anything.
Mike: Right.
Jason: The Big Money Index is the amber line on this chart. And what that is, that’s a 25-day average of all the unique inflow and outflow signals we get at our research firm. And basically, it’s just an indication of whether money is moving into the market, like here… Or if it’s moving out.
And it’s not really moving out you’ll see, it just kind of plateaued. So, the bad news is the plateau there. The good news is that right now, the BMI is still at 67.9.
Now, what does that mean? That means 68% of all the signals in the past five weeks are inflows. So still, there’s a really healthy undercurrent of money moving into the market, and we can see what that looks like with these green bars.
That’s money flowing in. But you can also see money flowing out – and that’s indicative of a rotation. The reason this has stalled out is because while money’s moving into certain areas of the market, it’s also moving out of others.
And we’ve all felt the burn lately on some of our larger tech positions. We’ve felt the burn on software stocks.
Yet, money is rotating around into other areas in the market, like small and mid-caps, and there are opportunities there.
So, the good news is there’s still money moving into the market. It’s not a decoupling or a derailing of a bull market… It’s just kind of a rotation, a reassessment of where institutions are finding risk versus opportunity.
Mike: Yeah, kind of a classic sign of a shift in leadership, right? I mean, just, the Big Money is shifting to other stocks and sectors.
Jason: Yeah, exactly, exactly. So, we’re seeing that rotation out of software stocks, and – this is my personal feeling – it’s very closely tied to cryptocurrency. Since Bitcoin’s high, I think it was around September or something like that, maybe a little bit earlier? That has come down like 47%. It’s been a really nasty downdraft.
Lucas: Yeah.
Jason: And I think… You know, margin in the cryptocurrency area is different than getting a margin call from Schwab or your broker. They can just cut you off whenever.
And we all know there’s a lot of leverage in the cryptocurrency markets. So, I think where those traders go to find liquidity is in some of the most embedded gains out there, which is software stocks and some semiconductors.
But then the news narrative comes around that, hey, AI’s coming to replace every software, you know, every company that ever was. Now, I personally don’t subscribe to that, and we can get into that a little bit later… but that’s, that’s sort of a description of how these rotations can be endemic – from something else entirely, and not just what you’re reading about in the news.
Mike: That’s for sure. I mean, the market is so short-term focused these days, it’s crazy.
And that brings me to your partner in crime, who’s also with us today: Lucas Downey, co-founder of the Quantum Edge system, and also the editor of our own TradeSmith Alpha Signals service.
Now, Luke, you did one of your famous signal studies here recently that talked a little bit about… exactly what Jason just hit on, which is how oversold some of the tech sector is right now, specifically the software stocks, as Jason mentioned.
Can you give us the details on that study and what it tells you? Perhaps about software going forward?
Lucas: Absolutely. Yep. Stocks go up and sometimes they go down… and other times they go down further than that, and that’s what’s been happening with software stocks.
Mike and Jason: Ha!
Lucas: The iShares Expanded-Tech Software Sector Fund (IGV) is a great ETF that packages some of the biggest software stocks out there… Microsoft, Oracle, Palantir, all the stocks that we’ve grown to love until recently.
But what was interesting about this selloff is that IGV had an RSI of 14, which we have right here on the screen. I’d never seen an RSI reading of 14 on this ETF before.
Well, we went back through IGV’s history, and we found that there were only a handful of times – just six days – where the RSI of IGV had been 17 or lower.
And the bottom line is: A month later, two thirds of the time, IGV is higher both three and six months later. In all instances, software stocks were higher by a wide margin.
Mike: Yeah, 35% in just three months. That’s incredible!
Lucas: Yeah. And I like to tell everybody, you know, don’t expect 35% gains, but also don’t be surprised at 35% gains. Because just as fast as people are forced selling, you know, they will put back on risk as the news flow starts to change, things get more positive.
And then we added to this study, because IGV had one of these big, huge drops – and it fell 11% in three days. And then it rebounded on the fourth day by 3.5%.
And so, the question we asked there was, wow, how often do you get a steep drop of similar magnitude?
And then on the fourth day, we have this big, huge rally… and we found only four instances, most of them were during the pandemic, where you can see that IGV fell and then had this big burst up. And this is what was really striking.
One, three, six, even 12 months later… In all instances, IGV was higher, so I have been out there banging the drum on this. Very few people out there to bang with me. I’d like to have a cymbal player or a high hat there, but I think this is a great buying opportunity.
It’s a great time to focus on high quality stocks that you know, amid all this indiscriminate selling. People are going to be very sorry if they sell high quality stocks like Microsoft, like Oracle, whenever the bid comes back into the market.
Mike: Yeah!
Jason: You know, Luke, it’s pretty hard to argue with 100%. I just want to wanna put that out there, you know?
Lucas: Yeah, I, I mean, it can’t go higher than 100% accuracy last I checked, so yeah – I’m right there with you.
Mike: It’s a perfect track record, as we call it, and that’s, uh, that’s definitely a good opportunity! We’ll have to keep a close eye on some of these leading software stocks.
And you know, another area of the market that I’ve noticed is really outperforming is the Russell 2000 Index, the small cap stocks. It’s outperforming pretty much every other index by a wide margin.
Jason, you pointed out recently that in your Big Money Index, flows are actually heading into small caps sort of disproportionately. Where do you see those opportunities – and which specific sectors are benefitting according to your Big Money flows? In small caps or in large cap stocks.
Jason: Yeah, sure. So, let’s just take a look at that…
If we look here at the charts, and we just look since the beginning of the year… you can see down here. Okay, these are all the inflows and outflows since New Year’s Eve.
Mike: Mm-hmm.
Jason: We have 4,800 inflows. Look at where most of them are concentrated.
You know, these are companies between $500 million and $5 billion in size, and these are up to $50 billion. So, there’s just been a truckload of inflows into these smaller and mid-cap names.
Now what I’m seeing as well, and I think, you know what I think these inflows into the Russell 2000 are hinting at? It’s that there’s a clamor for value: You know, undervalued stocks that are really unloved and underappreciated.
And I think that is such a strong contra-bear signal.
Meaning, you know, if there was really a risk off move, if there was a decoupling, if there was a real fear that the economy was slowing down, people aren’t gonna be rushing into smaller and mid-cap companies. In fact, it would be the opposite. They’d be seeking safety and, you know, dividend aristocrats and you know, blue chip safety.
That’s not what we’re seeing. We’re seeing a rotation to those small and mid areas, and I am really focused on companies that have expanding sales, expanding earnings, expanding profit margins, and manageable debt levels.
Because those types of companies in specific, and we can get into specific sectors in a second, those types of companies are really gonna benefit from a falling interest rate environment – which is what we’re in!
Imagine for a moment you ran a business and your sales just plateaued. You sold a million dollars in product a month, no matter what. Nothing ever budged.
All of a sudden, if the cost of your debt goes down by 25 basis points every month or so, if there’s gonna be interest rate cuts, your margins are naturally expanding if you can refinance that debt at a lower level
But we’re seeing the opposite happening, actually: Earnings and sales are expanding, instead. You know, I think we are most of the way through this earnings reporting cycle, and 76% of the S&P has beat earnings estimates. Around 70% have beat sales estimates.
And these guidance numbers are really great. So, all the boo-birds and all the scary people and people wearing their big furry bear suits with claws, like… just stop.
You know, there’s a lot of opportunity here. And I myself, if you’re asking specifically, I’m looking in that beat up software area. Technology, semiconductors, and the like… because it drives everything we ever do, and it’s leaking over into other sectors too.
So, I kind of feel like software on sale here is a great big gift.
And I know people are worried, you know, oh, “SaaS is over because AI’s gonna replace it.”
I, I just don’t feel that way. There’s slow adoption, there are all these reasons… We can go into it, but Luke just gave you the best reason of all: 100% of the time in the past, it’s green skies straight ahead after a scenario like this.
So that’s where I see opportunity.
Mike: Yeah, it’s a good observation. You know, as Lucas mentioned, with an RSI in the software sector down below, uh… way below oversold even?
A reading of 30 on the RSI is considered oversold, and it got down into the teens? That’s an incredibly rare, oversold condition, so it’s due for a rebound.
And Luke, I’ll ask you the same question: Aside from software, what other sectors or even asset classes – you know, gold for instance or what have you – are also at extremes where your signal studies may be telling you that a reversal is likely at some point?
Lucas: That’s a great question! I looked at this this morning, so I think this will be relevant.
I looked at all of the sector ETFs, so the XLPs, the XLBs, the XLKs, and so on. And I plotted all of the constituents, all the stocks in each of these ETFs, to see what percentage of them were above their 50-day moving average. And if they’re above their 50-day moving average, that would mean that they’re in an uptrend.
And this year has really been the flip-flop of last year.
So, consider this: The Consumer Staples sector, that’s XLP. 89.5% of all the stocks in that basket are above their 50-day moving average. Materials, that’s XLB, 89%. Utilities at 88%, Energy at 87.5%.
So those four, if we were gonna put that in Olympic terms, those are gonna have the gold medal right now. And all of those are easily beating the S&P 500!
And as Jason was saying earlier, a lot of this is more of a value tilt. People are getting excited about dividends, interest rates are slated to come down, we’ve got a new Fed chair appointee… so, it makes sense that everybody’s gonna be piling into some of these income-rich areas.
And then if you look at where money has not been going in as robust. You got, XLI, which is industrials, Real Estate Investment Trusts (REITs), which is, uh, XLRE, each of those, they’re up. 70% of the constituents are above the 50-day moving average in industrials. 63% in REITs.
I’m gonna give those the silver medal of honor of, you know, your day. We’re all winners here, right?
And then if we go all the way to the bottom of the bucket, you’ve got XLC, right? So this is Communications: Only 24% of that basket is above its 50-day moving average. XLK, the Technology sector… 38% of stocks are above the 50-day moving averages.
So again, wow, big rotation, big change. That’s gonna get the bronze metal. But again, if we look at how things are oversold…
Software looks oversold, some other areas after earnings look oversold… some semiconductors, big mega-cap semiconductors look oversold on some of these metrics.
Jason: I was gonna say, if you wanna give a gold medal to opportunity, it’s the bronze medal winner of, you know, tech being wickedly oversold. But I guess it all depends how you look at it! Everybody’s a winner.
Mike: Everybody! Somebody’s a buyer, somebody’s a seller. As long as we’re all participating.
Jason: Ha! That’s it.
Mike: Okay. Any parting thoughts, gentlemen? Just observations in general about the market and, you know, what our TradeSmith insiders should be looking for over the next month or so ahead?
Jason: Sure. For me, earnings continue to be the driver. They’re working. The news is always looking for ways to keep you engaged, keep you anxious and scared and tuned in.
Mike: That’s for sure.
Jason: And typically, the narrative, too. It comes way after the actual price action, right? So don’t look for that as a leading indicator.
Look for the money flows. That’s what you know we’re all about. I think there’s a lot of opportunity in the market. I’m still quite bullish for 2026. That said, Luke has done an amazing study that shows midterm election years are typically the weakest of the presidential cycle – and the most volatile.
So be prepared for a bumpy ride, but I still think equities are the place to be. That’s my parting thought.
Mike: Alright. Lucas, your turn?
Lucas: Yeah, I would say, listen: This year is completely different than years past, right? And I think that’s a good thing for stock pickers. Because so often it was all about the “Mag 7” and folks saying “you gotta own this little handful of stocks!” while every other stock just went lower.
That just isn’t the case this year, I think. It’s great for TradeSmith, right, where we focus on software looking for new leadership, looking for companies where earnings are accelerating and the prices are going up. So, it should be a big year.
And not only that… I’ll leave you with another stat.
If you look year-to-date, and I haven’t updated this in a couple of days, but about two-thirds of the stocks in the S&P 500 are outperforming the S&P 500 as an index,
Mike: Right?
Lucas: So basically, the S&P is, you know, flat to down because, you know, the 40% of the index weighted in tech is holding it down. So, what that means is it’s never been easier, over any point across the past three to five years, to beat the market right now.
You could throw a dart at all the stocks in the index, and you have a two-thirds chance to outperform the S&P 500.
So, I think that’s what is gonna be the narrative of 2026: Indices are gonna hug near the flat line. Maybe they go up a little, but you’re gonna have just some big, big themes under the surface that are easy to miss if you don’t have software.
Mike: Yeah, that’s a great point. The stock market today has really shifted from being index driven to more of a stock pickers market.
And, you know, that’s where our TradeSmith indicators and our strategies, like those you guys run, come in. They all really, really shine in that kind of a market.
Well, there you have it, TradeSmith Insiders! The latest insights from Jason Bodner of Quantum Edge Pro and Lucas Downey of Alpha Signals.
Jason, Luke, thank you so much for joining me today. This was great.
Jason: Always a pleasure. Thanks for having me.
Lucas: Thanks fellas. Thanks Mike.
Mike: All right. We’ll do it again soon. Thanks everybody, and as always – good investing.