S&P 6,000 by Year End By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - Nuclear stocks lift off, but be careful…
- Big tech bandwagons on small modular reactors…
- Jason Bodner’s Big Money Index goes overbought…
- These are the top mid-caps to own through year-end…
- All signs point to a second-wave AI boom starting right now…
What’s the opposite of wiping egg off your face? Let’s call it cooking a perfect French omelette: Butter, eggs, a perfect fold with no cracks, and just the right sprinkle of chives. A French omelette takes time and patience to master. And this trade took plenty of both to play out. But the last two days of price action served us up a five-star breakfast. You see, exactly one year ago, back when I fresh-facedly started writing the TradeSmith Daily, I (proverbially) climbed on the roof of my house and started shouting to anyone who’d listen that nuclear energy would soon become an unmissable investment trend. But not for no good reason. The catalyst for a nuclear-energy renaissance would be none other than the hottest topic in tech, artificial intelligence. AI gobbles up energy like little else. And nuclear provides some of the highest-capacity energy with the smallest amount of waste and next to zero carbon emissions. It was always the case that the tech titans pursuing AI dominance would eventually turn to nuclear to meet their needs. It was just a question of when. I even gave you three stocks to watch in the space while the trend played out. Now, I won’t be so bold as to say it’s been a perfect trade. Nuclear energy stocks, as represented by the Global X Uranium ETF (URA), have been on a bumpy road higher – up about 31% since I wrote you… but with most of those gains coming since early September. Until that point, URA had fallen about 15% for the year. But if you were so bold as to bet on one or more of the three nuclear energy stocks I showcased one year ago, you’re sitting on market-beating gains. Uranium Energy Corp. (UEC), Cameco Corp. (CCJ), and NexGen Energy (NXE) are all beating the market since I wrote you (and all but the latter are beating stocks in 2024): 
You’ll also notice, however, that UEC, CCJ and NXE are going straight up right now. We’ll discuss why in a minute… but first, let’s address that elephant… These uranium stocks are wicked overbought… URA alone is pushing towards 80 on its daily Relative Strength Index. That’s… really overbought. It’s only reached this level a handful of times since it started trading in 2011 – the last time being over a year ago, in September 2023. Looking through the data, URA has closed above the 78 level only 12 times in its entire existence. And, well, let’s say I’ve seen better buy signals. In the four trading days after URA has reached this level, it was only higher 42% of the time. Granted, the average winning trade of 7.2% more than made up for the average losing trade of -3.9% – shifting the odds slightly in the bulls’ favor. But overall, it’s a toss-up. And my gut says you’re better served by waiting a few days for things to cool down before buying in. Make no mistake, though: This excitement is warranted. A few weeks back, the big news was that Microsoft (MSFT) negotiated exclusive access to power generated from the Three Mile Island nuclear plant for 20 years after its expected launch in 2028. Clearly, other Big Tech executives took notice. This week, both Google (GOOG) and Amazon (AMZN) announced similar partnerships – Google with Kairos Power for their small modular reactors (SMRs) and Amazon with companies Energy Northwest, X-Energy and Dominion Energy (D) to build SMRs. Just as important as the deals themselves is their longevity. Microsoft’s contract is for 20 years. Google and Amazon have lengthy contracts that stretch into the 2030s. That means this trend has serious legs. The companies building the future of AI and technology are convinced they’ll need nuclear power to do it, and they’ll need it for a long time. By the time you read this, nuclear stocks may have pulled back, maybe taking the RSI out of overbought conditions. If it were me, I’d look to get some exposure to the space in high-quality companies as a supplemental bet on AI. Just be smart about it. If the momentum is strong to the downside, look to buy a one-half or one-third position to start and add on any future dips. Stocks are getting white-hot across the board… They’re up over 3.5% in the past month, totaling out to a banner-year gain of more than 23%. It’s not often the stock market gains a quarter of its value in a year. It’s something to be happy about. You’ve probably felt that happiness whenever you check your portfolio and find yourself spontaneously tapdancing. But we have quantitative ways to measure it, too. And in those, we find reason to steel ourselves from excessive celebration. One of my favorite methods is Jason Bodner’s Big Money Index. This indicator detects buying and selling activity so unusually large that it’s likely from major Wall Street institutions. Jason smooths the net activity into a moving average, indexes it, and overlays it on a chart, giving us this: 
When the yellow line (the index) moves up, it means there’s evidence of institutional money flooding into the market – and vice versa. Just as important, however, are the red and green dotted lines. Those represent when the flow of money is getting extreme in either direction. And what’s especially notable is that the index just crossed into overbought conditions for the first time since late November 2023. You can see that this doesn’t happen often: only four times in the past three years, with past instances in July and January of 2023 and August of 2022. Now, before you panic, understand something about this index. Reaching overbought territory is no immediate sell signal. In fact, it can be something of a buy signal. Each of those times stocks went overbought on the BMI in the chart above, they got even more overbought before the index fell back down. It’s not yet clear if this instance will be like November 2023, where stocks stayed overbought for months and never backed down… or if a correction will come much sooner, as it did the previous three times. In any case, the BMI exiting overbought is the more important signal. And as soon as that happens, you’ll read about it right here. In the meantime, seasonality gives us two scenarios for whether the BMI will continue to climb or not. Seasonal pressures are tugging at stocks in both directions… The outlook for stocks very much depends on your timeframe. Through the end of October, stocks run into some trouble on election years. Here’s our seasonality data going back 18 election cycles. On average, from what will be the next five trading days through Oct. 25 (next Friday), stocks have seen an average return of -1.64%, and they were negative 72% of the time: 
That could be enough to take Jason’s Big Money Index out of overbought, which would typically be a sell signal. On the other hand, look what happens after. From Oct. 25 through the end of the year, election years have seen stocks rise an average of 4.7%, and they were positive nearly 78% of the time: 
If stocks follow this exact script, we’ll see the S&P 500 stumble next week – then surpass 6,000 for the first time by year end. But as we showed you, think smaller… Just not too small. TradeSmith Daily contributing editor Lucas Downey showed you yesterday that mid-cap stocks, those between $2 billion and about $20 billion, outperform the most through the seasonally strong November-April period. Where large caps return “just” 7% and small-caps climb 8.35%, mid-caps return 9.35%, on average. With that in mind, I wanted to comb through the data and see which mid-cap stocks have the best track records through this coming period. I took a look at the mid-cap S&P 400 and traced each stock’s performance from Nov. 1 through May 1 for as much data as each stock had. Here’s what I found: 
On the whole, mid-caps have had very high win rates through this period. The top 10 all had win rates above 80%, and with no fewer than 15 years of data. Assuming you bought and held each stock through the period, the highest win rate goes to A/C, heating and refrigeration company Watsco Inc (WSO). It enjoyed an 87% win rate and also posted an average win of over 29% for this six-month stretch. The biggest winner was trucking company Saia (SAIA), with an average return of 22.34% (counting wins and losses) as well as an 85.7% win rate. Mid-caps may be a great bet in the months to come, and these stocks should be at the top of your watchlist… The second wave of the AI boom has already started… Think back to those big tech nuclear investments we were just talking about. These giants are all tripping over themselves to get involved in nuclear in order to power all the massive datacenters they’re building out. And the purpose of these datacenters? To provide their AI models as a service to the next wave of AI businesses. Investors have had a lot of fun making money on AI hardware companies over the last couple years. But that trend may have already seen its peak. It’s time to buy into what comes next: the crop of companies that will start using AI to radically transform their business – and disrupt those that aren’t getting on board. Companies doing this, especially those in the small- and mid-cap space, are exactly where you want to be focusing right now. And you can do it without poring over press releases or seeking out risky “pure play” AI stocks. A friend and colleague of ours, Louis Navellier, has found a way to uncover those high-growth stocks quantitatively. For decades, he’s used a system that spots the next generation’s high flyers before they take off by focusing on a few key metrics. (For more on those, check out our CEO Keith Kaplan’s dispatch from Wednesday.) Louis’ system has already flashed the green light on a ton of new small-scale companies. And he considers this an urgent buy signal – as the Real AI Boom could kick off as soon as Monday, Oct. 21. So, you’ve got until tonight to check out his presentation showing exactly how it works and how you can start using it. Click right here for more details. To your health and wealth,  Michael Salvatore
Editor, TradeSmith Daily | 
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