TradeStops members, both new users and TradeStops veterans, have the best tool available for understanding and managing risk, both with individual stocks and complete portfolios. Here are three ways that using Ideas by TradeSmith can help you become a more successful investor.
The Market Health section of Ideas gives you a heads-up on the likely direction of the markets by knowing whether the number of stocks in the Stock State Indicator (SSI) Red Zone is increasing or decreasing. We follow the major U.S. indices, many international indices, the S&P sectors, and commodities.
Let’s focus in on the S&P 500 and check out its current market health. There are four major areas on this chart that can help you understand the condition of the S&P 500.
The first area at the top of the chart shows the closing price of the S&P 500 as well as its current health (SSI status), risk as measured by the Volatility Quotient (VQ), and the range for the S&P 500 for the past year of trading.
On the left-hand side is a pie chart that shows the percentage of stocks making up the S&P 500 that are in the SSI Green Zone, Yellow Zone, and Red Zone. The S&P 500 is an index that is market-cap weighted. The top 10 holdings account for more than 20% of the entire index. We believe it’s important to know the condition of all the stocks in the index, not just a handful. This is not available in TradeStops, but it’s great information to have.
The largest section of the chart shows the movement of the index for the historical time period that you choose. This is the same chart that you’d see in the TradeStops site.
The bottom section of the chart is the one I like to follow closely. It shows the SSI distribution of the S&P 500 stocks going back in time. You can actually see this going back to April 2018 when we started tracking the distribution.
This is powerful information. As the number of stocks in the SSI Red Zone increases, it portends a falling market. Conversely, as the number of stocks in the SSI Red Zone decreases, it tells us that the overall market is likely to rise. This information is not available anywhere else within TradeSmith, and it’s a number I look at each week to help me understand what’s happening within the entire index, not just a few big-name stocks.
The Ideas Lab gives members the opportunity to find potential stock and option trades based on historically proven strategies developed by the TradeSmith research team over the past several years.
There are seven strategies presented here, each with nearly two dozen stocks that match the requirements to qualify.
For example, the Billionaire’s Club within TradeStops follows the investment decisions of more than two dozen billionaires and their portfolios. This information is taken from the 13(f) filings that these investment geniuses are required to file on a quarterly basis. There are more than 1,350 stocks total included in the Billionaire’s Club. In the Best of the Billionaires, we use our proprietary algorithms to whittle that down to a list of the 20 best stocks in the entire database.
You can sort the output to show the information that is the most important to you. I’ve sorted the list by the number of billionaires that own a particular stock. In this case, Berkshire Hathaway “B” shares (BRK.B) are owned by seven of the billionaires we follow.
Clicking on the hyperlinked number will show you a list of the billionaires who own BRK.B.
The Kinetic VQ and Low Risk Runners stocks are based on our own research and indicators. The Kinetic VQ stocks are stocks in the SSI Green Zone that have a VQ that is currently higher than each stock’s historical average. Our research has shown that as a stock’s VQ returns to its average, it can act as rocket fuel in propelling the stock higher.
Low Risk Runners are stocks that have moved down into the SSI Yellow Zone and then have recently returned to the SSI Green Zone. Our research shows that these stocks can remain in an uptrend for a long time, resulting in large potential gains with less risk than if the stocks were bought at their most recent highs.
Both the Kinetic VQ stocks and the Low Risk Runner stocks also show potential option trades that can be used as a stock replacement strategy for those who understand option trading.
The Sector Selects, Dividend Growers, Growth, and Value tabs also have the best 20 stocks that have passed our rigorous screening process based on their own (mostly self-explanatory) characteristics.
The last section of the Ideas page lets you find stocks based on your own input. You can search the entire TradeSmith database of more than 50,000 tickers to find the stocks that meet your criteria.
Here’s an example of looking for small cap and micro-cap healthcare stocks. I want to find those that are in the SSI Green Zone, trending higher, with a VQ of less than 40%.
This search resulted in 39 stocks that I would have never found on my own. I can now research these individually and decide if I want to consider any of them for my investment portfolios.
There’s a lot more that you’ll be able to see during the educational webinar that Marina and I will present on Wednesday, Feb. 5 at 1 p.m. ET. Click here to register. Even if you can’t join us for the live event, register and you’ll be in the first group that will receive the email link to the recorded presentation.
We’re looking forward to sharing these strategies and ideas with you.
Research and Education Specialist, TradeSmith