History Was Right on TSLA

By Michael Salvatore

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We told you TSLA was a buy on April 24… Here’s what happened next… Three one-month breakouts in quality names to keep an eye on… A record low in stock-picking performance… The biggest risk in AI is standing still…

There was a period early this year where Tesla (TSLA) was the stock market’s punching bag. It was swirling the narrative drain, caught up in a mess of negative mainstream media attention. As we pointed out on April 24:

Cybertruck recalls… Price battles with China EV makers… Cancelling the $25k Tesla model in favor of a robotaxi… All this bad press is compounding on each other and causing a share-price spiral.

TSLA stock is now down more than 65% from its 2021 all-time high, and down almost 44% this year alone.

Most importantly, it’s been down a full seven days in a row. That has happened only four times in TSLA’s history as a public company. It’s never closed down eight days in a row.

This last point really intrigued us. Rare events like these are worth close attention… because they can give us big clues as to what comes next.

So that led our team to this analysis – showing TSLA’s forward returns after a rare seven-day selloff streak:

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So, here we are a little over two months later. And what has TSLA done? Exactly what the data suggested it would.

The close on April 20 proved to be the local bottom for TSLA. Since we wrote you four days later, it’s risen more than 41%, escaping the downtrend channel it’s been trapped in for the past year:

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❖ What’s to be learned from TSLA’s latest comeback?

There’s something you have to always keep in mind about the financial mainstream media.

Like all mainstream media, it survives on attention. And we as a species have collectively decided that the best way to get attention on the internet is to zero in on negativity and pessimism.

Pessimism doesn’t give us much to go on as investors. Conversely, investing is inherently an optimistic act – if we buy a stock, we believe good times are ahead for it.

But data carries no such bias. No need for negative attention. It simply builds up over time.

The more data you have, and the better methods you have to slice and dice it, looking for rare events like what happened with TSLA… the better your odds of success as an investor.

The takeaway for you is that it’s a classic example of why we always say to favor data over sentiment. That’s the signal hidden beneath the noise. It’s what TradeSmith is all about.

❖ And here are a few signals to consider…

As regular readers know, we spend a whole lot of time, money, and energy looking for signals in the data. We’re constantly building new ways to look at it… to help bring great opportunities to the surface for you.

As just one example, every day I receive a report of stocks with a high Business Quality Score (BQS) that are also staging a breakout to the upside on a one-month basis.

This is invaluable data. It’s how TradeSmith scans the market for “the stocks Wall Street forgot”: quality businesses quietly outperforming behind the allure of the top-brass mega-techs.

Then, as soon as those stocks see a surge of momentum, they get a flag.

You see, while it’s important for a stock to have strong fundamentals, it isn’t everything. To put it simply, a stock has to go up for it to be worth buying. People have to want to invest in it. As the great Will Rogers once said: “If it don’t go up, don’t buy it!”

These are the stocks that are not only recently going up… but that have fundamental strength backing them up. It’s a win-win cocktail of factors worth following.

Gracing the top of the list today are the following three stocks:

1. Arista Networks (ANET) | BQS of 93
While Arista is no slouch, with the stock up 55% this year, the recent 12% upside breakout in the past month is well worth watching.

2. Diamondback Energy (FANG) | BQS of 89
Diamondback is a quality oil & gas name I’ve seen spring up on multiple TradeSmith screens recently. It’s up about 2% in the past month and a stone’s throw from a new high, while also cheap: trading at just 12 times earnings.

3. New York Times Company (NYT) | BQS of 74
Defying the odds, NYT proves one of the stronger publishing company stocks in the market. It’s up about 8% this year – lagging the market. But measured from the April lows, it’s up about 24%… and its latest move has it knocking at the door of a new high.

With the bulk of this year’s gains concentrated in the top tech stocks, and those top stocks making up a massive chunk of the benchmarks, a lot of folks have been quick to declare stock picking dead.

As you can see, that’s far from the case. All three of the quality stocks above are near or at new highs… even if they aren’t stealing the limelight.

❖ But we can’t ignore the “winner take all” trend, either…

My friend and contributing TradeSmith Daily editor Lucas Downey shared this graphic in our group chat this morning:

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Source: Ned David Research

It’s a stark, potentially worrying picture. The number of stocks outperforming the S&P 500 so far this year is the lowest in the last 50 years, and it’s really not even close.

To be clear, this is just half a year’s worth of data. There’s plenty of time for more stocks to catch up and beat the benchmark. But it clearly demonstrates the trend. It’s a winner-take-all market… and the winners are all at the top of the market-cap spectrum.

The last time we’ve seen the percentage of outperformers nearly this low was back in 1998, when the dot-com bubble was starting to really heat up.

Now, this is another one of those charts that looks scary, but really isn’t… at least for right now.

1998 was a banner year for the stock market. The SPDR S&P 500 ETF (SPY) returned 28.7% that year. That followed ’95 through ’97, where stocks returned more than 31% per year on average. Then in 1999, when more stocks started to outperform the index, the SPY returned 20.4%.

It was 2000, of course, when things started to go haywire. In 2000, SPY fell 9.7% on the year and would fall to a trough of 45% by the spring of ’03.

What can this tell us about today? Well, for one, these periods when few individual stocks outperform don’t tend to last long. And when the trend does reverse, it does so violently – with the number of stocks beating the market more than doubling from 1998 to 2000.

When the trend turned, investors quickly fled internet stocks and rotated into the underloved plays… sending them all higher. So, they suddenly ended up beating the market, which was now dragged down by underperforming tech.

Could the same happen today? Absolutely… but if it does, it will take time. In all likelihood, there’s another good few years of broad market performance ahead. It’s more ’95 than ’98, to put it one way.

However, if and when the tide does turn, you’ll want to be positioned in stocks that fit these criteria:

  1. High-quality companies
  2. Whose stocks are enjoying positive momentum
  3. And in industries not so tightly correlated to the predominant trend of the moment.

(You’ll note the list we shared earlier as a solid source of ideas. We’ll keep sending you those names when we find something interesting.)

That leads me right to an interesting conversation I just had…

❖ I just got off the horn with Tom Gentile, founder of Gulfport Analytics…

The moment I met Tom, I could tell just from my gut he was a thoughtful, kind, hardworking person. Then he proved it to me.

Tom told me how both of his parents were in the Pittsburgh steel business when they met, but he grew up mostly in Atlanta, Georgia. Early on, he followed in their blue-collar footsteps… operating a forklift in a Home Depot warehouse.

He quickly decided he wanted more for himself and his family, and so Tom taught himself how to trade the financial markets from his parents’ basement.

The lessons Tom learned from this “school of hard knocks” ended up encoded into sophisticated software programs that Gulfport Analytics uses to this day, like:

  • Darknet, a contrarian indicator that identifies three invisible channels that, when properly aligned, indicate an imminent trend reversal. These proprietary Darknet buy signals can come ahead of some of the biggest moves in the market and can deliver profits in just a few days.
  • Currency Waves, which finds bullish signals in the cryptocurrency market. Custom moving averages pinpoint exactly the right time to buy and sell Bitcoin, Ethereum, and a small group of the most tradable altcoins in the market. These smaller coins have delivered incredible gains over the years – like 1,000% on OMG, 300% on NMR, and over 200% on REP – twice! Overall, Tom’s readers have had 114 chances to double their money (or more) on these coins.
  • And another proprietary indicator Tom uses to recommend trades that last 35 days or less and can deliver double- or triple-digit profits. In the past few years, Tom’s alerts gave his readers the chance to double their money 182 times.

Tom Gentile has taught over 300,000 students how to unlock the power of pattern trading. Before Gulfport, he co-founded one of the first options education companies, Optionetics. He’s held seminars all over the world: Orlando, London, Paris, even Saudi Arabia…

And now, Tom wants to show you how a specific corner of the market is locked in one of history’s most consistent and most lucrative patterns.

Tom says that more profits will be made in the “Final Phase” of the AI boom than we’ve seen in the last five years…

But he also adds that if you don’t know how to play it, you will get crushed. Especially if you simply buy and hold.

Tom’s holding a free webinar next Tuesday, July 9, at 8 p.m. Eastern – where he’ll give you his full plan to profit as we enter the Final Phase. He wants you to be ready to trade on July 10. Click here to reserve your spot at the event.

And by the way – that call I had with Tom is the latest in our series of interviews with the best and brightest minds at TradeSmith and our corporate partners. That airs on Saturday, and you’ll get some quality face time with Tom to learn what he’s all about. So don’t miss it.

To your health and wealth,

Michael Salvatore
Editor, TradeSmith

P.S. Our offices are closed this Thursday and Friday. (We decided to get ahead of what’ll likely prove the most popular day to take off all year, July 5, and give everyone at the company some much-deserved R&R.)

But that doesn’t mean we’ll leave you in the lurch. Tune in tomorrow for a brand-new signal study from Lucas Downey, all about how stocks are set to perform for the rest of ’24.

Then on Friday, Keith Kaplan will show you why options trading isn’t the risky ride most think – and in fact, you’re taking on more risk by NOT trading them.