This Stock’s Haters Will Only Get Angrier BY LUCAS DOWNEY, CONTRIBUTING EDITOR, TRADESMITH DAILY As stocks bob and weave, plenty of unloved, hated areas are surging. You may be noticing it yourself if you follow Chinese stocks, real estate investment trusts (REITs), and small caps… all of which are outpacing major indices the last few months. The massive rotational equalizer trade has also benefited many down-and-out stocks. Take the violence-inciting name PayPal (PYPL). (Disclosure, I hold a long position in PYPL.) In three months, PayPal shares have ripped 37%. The iShares China Large-Cap ETF (FXI) has gained 23%. In the same timeframe, REITs as measured by the iShares U.S. Real Estate ETF (IYR) are up 16%, while small caps as measured by the iShares Russell 2000 ETF (IWM) are up 8%. Each of these once ugly ducklings are massively outperforming the S&P 500’s gain of 5%, as you see below in this chart of the SPDR S&P 500 ETF (SPY) against the four names I mentioned: 
These areas have been widow-makers for years. So, I’m sure many of you may be thinking now would be a great time to ring the register on some of this recent outperformance. I don’t blame you… But, if you’re a disciple of data like I am, you’ll think twice. It turns out that fading the big momentum in PYPL shares has been a lousy trade in the past. In fact, history points to a good chance of a double-digit gain in short order. The once high-flyer could be turning a corner… before the sprint. Don’t Jump Off the Latest Rally in PayPal Stock Let’s face it. You’re not going to win a popularity contest recommending PYPL as a buy. The former Wall Street darling has let many investors down (including myself!). One look at a long-term chart relative to the SPY reveals the unfortunate truth. Over the past three years, PYPL shares are down 70% while the SPY has climbed 33%. A 103-point spread is massive, to say the least! However, readers of TradeSmith Daily understand that a mega-rotation has been underway for months. What began as a rotation out of mega-cap tech and into small caps morphed into a resurgence in dividend stocks. Now, money is chasing names like PayPal that had previously been left behind as roadkill. Below shows two important keys to PYPL: - On a three-year basis PYPL is massively underperforming large-caps.
- But since the great rotation began on July 11, the SPY has eked out a 2.2% gain while PYPL has ramped 35% higher:
When you zoom out this far, it’s easy to miss what’s hiding in plain sight. But by using one of our in-house TradeSmith modules, Jason Bodner’s Quantum Score, I spotted a very bullish setup that occurs right after PayPal shares surge higher. High Momentum in PYPL is No Sell Signal There are a lot of ways to slice data… especially when it comes to stocks. I like to understand the overall trend of stocks first, then work my way down. That’s how we’ll approach PYPL today. With an understanding that the latest trend has shown underappreciated equities having bigger upside moves than usual, I’m not surprised by the action in PayPal one bit. After all, if dogs like Anheuser-Busch (BUD), 3M (MMM), and REITs can rally – why not PYPL? That’s where today’s powerful signal study comes into play. Over the past two months (42 trading days), PYPL shares have jumped a mind-numbing 35.8%. This latest high-momentum performance in PayPal shares is a relatively rare event. By using TradeSmith’s software, I was able to find 51 prior instances where PYPL shares climbed at least 35.8% in a two-month period. And based on the average forward returns, investors won’t want to jump off the high horse just yet! Since 2015, whenever PYPL shares have gained at least 35.8% in a 42-day period: - The stock gained 2.2% two weeks later.
- The shares jumped 6.8% a month later.
- Two months later saw a 14% rip.
This evidence-rich signal says to second-guess fading the latest rally. If anything, it appears the clouds could be parting for this fallen angel. Throw in the fact that Jason’s Quantum Edge system is giving the greenlight on PYPL, which gets a Quantum Score of 75.9 – the odds that there’s upside left are mounting: 
I don’t have a crystal ball, and I can’t predict the future. But what I can tell you is that there’s a world of new stocks set to lead the charge in 2025. With interest rates on the downtrend, accommodative monetary policies globally, and improving earnings across the board – be open to new trends outside of the “Magnificent 7” mega-cap tech stocks. The latest breadth trends clearly reveal the market is no-longer led by a few horses. Now’s the time to be jockeying for tomorrow’s winners… today. Regards, Lucas Downey
Contributing Editor, TradeSmith Daily Note from Michael Salvatore, Editor, TradeSmith Daily: If a small-cap rally is on deck, that means you have to start seeking out the little-known winners of tomorrow. And if my friend and InvestorPlace analyst Luke Lango is right, Thursday, Oct. 10, could be a big day for one small-cap tech stock linked to Tesla (TSLA). You see, that’s the day Elon Musk plans to “unveil” Tesla’s Robotaxi. While Elon’s promised a takeover in self-driving technology for years, that hasn’t quite panned out. That might explain Tesla’s stagnant price action lately, with the stock just barely positive this year. 
Elon’s Oct. 10 event is a massive gambit that could put TSLA back on top, IF they can deliver. Most importantly, it could give a major lift to related stocks. And that brings me back to Luke. He believes a tiny $3 company is the key to unlocking Elon’s biggest, boldest promise… and this upcoming Robotaxi event could send its stock skyrocketing. Luke is working on a complete briefing on this opportunity, which he plans to present next Monday, Oct. 7 at 10 a.m. Eastern. His presentation will be free and open to the public – click here to reserve your spot. | 
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