A TradeSmith Software Q&A with Keith Kaplan

November 29, 2024

A TradeSmith Software Q&A with Keith Kaplan

BY Keith Kaplan
CEO, TradeSmith

The list of things I’m thankful for this year is too long to count.

I can say with certainty that my family, my friends, my health, and the simple fact that I get to spend another Thanksgiving with my loved ones and delicious food all grace the top.

But just below that are the hundreds of thousands of dedicated investors and traders who call TradeSmith home.

And I can think of no better way to show my thanks than to spend some time with you.

Today I’m going to look through the dozens of emails you sent me last week when I asked how we could improve our software, our newsletters, or anything else you had in mind. And I’ll respond to a few where I think I can help right now.

(I should note, a few of you also pointed out some great low-hanging-fruit improvements we’re tackling. And we also got a bunch of great ideas for new features that I’ve also sent along to our team.)

Let’s begin with this email from Matt O.:

It would be good to know when a sector (instead of a stock) is starting an uptrend or bull market, and then how we can hone in on the stocks in that sector and pick the ones we want.

Or in general sector rotation – which sectors to rotate out of and which ones to rotate into.

Hey Matt, thank you for writing in.

If you subscribe to Ideas by TradeSmith, Trade360, or are a member of TradeSmith Essentials or TradeSmith Platinum, you should have access to our S&P Sectors tab, under the Markets menu in TradeSmith Finance. Here’s what that looks like when you click List view:

A traditional “bull market” is 20% higher from the bear-market bottom. But here at TradeSmith, we use the Green Zone as a better entry signal, as it considers a sector’s individual volatility history to show a more appropriate measure of positive momentum.

Now, we don’t send out alerts on all these sectors automatically. But you can set up alerts quite easily through the My Portfolios > Alerts page, even on assets you don’t own.

So, if you wanted to create an Alert for all the S&P 500 sectors, you could set up a portfolio that contains all of the above ETFs. Once you’ve done that, you can automatically set an alert that will send you an email whenever any of the above ETFs changes between the Green, Yellow and Red Zones.

Now, let’s talk individual stocks. On the screenshot above, you can see arrows to the left of each sector ETF. When you click that arrow, you can then select View Components, which takes you to a screener where the relevant settings are automatically applied for you.

Here, for example, is what happens when you click to view the components of the Financial Select Sector SPDR ETF (XLF):

Click Run Screener, and when you get the results, you can use our filters to sort the components however you like. Here are the top 10 XLF stocks sorted by Health, which puts the most recent Green Zone entries up top:

As for sector rotation, we don’t currently offer a dedicated software tool for a sector rotation strategy. But you can use the Alerts tool I mentioned above to strategically move out of sectors falling out of the Green Zone and into ones that are entering it.

Hopefully that’s helpful for now, and we’ll keep a sector rotation strategy in mind.

Now, here’s another email from Rick M.:

Keith, I’m a Platinum member and find a lot of value from your tools and screeners, but the example of finding stocks early that are on the rise versus much of the market in a drawdown, I don’t know how to use the tools to find those early investments? Is there a course/way to find these early?

Hi Rick, thank you for writing. And thank you very much for being a Platinum member.

Before I go on, I encourage you to take some time and check out the recent Platinum-exclusive Q&A I recorded a couple weeks back. For two and a half hours I gave a Master Class on TradeSmith and answered subscriber questions, so there’s a ton of valuable info in there.

As for your question, I’ll turn again to one of my favorite TradeSmith tools, the screener.

Our screener is incredibly powerful once you really start digging in to all the filters it offers.

Take your query, for example: You want to know how to find stocks that have recently begun uptrends even during times where the market is down.

I’ll make just a few tweaks to the screener I showed Matt above, and we’ll get our answer:

I added the “Entry Signals” filter to the above screener and set it to find stocks that flashed new Entry Signals in the last seven days. I also expanded the search to the Dow Jones Industrial Average and the Nasdaq 100 as well as the S&P 500; that way, we cover the whole U.S. large-cap universe.

Here are those results. As you can see, eight companies have flashed recent Entry Signals. Our data tells us these are good stocks to consider buying:

And, of course, this is just the beginning of what you can do. As a Platinum member, you can look for stocks in certain sectors, with certain valuation metrics, or stocks that rate well on our Business Quality Score or Jason Bodner’s Quantum Score, as just a few examples out of dozens of possible filters.

It’s just a matter of screening for stocks like this during bear markets, whenever one should occur again.

And to be clear, that’s not easy! It’s hard to want to buy stocks when they keep going down. But when you have access to our screener software and can find the rare few stocks entering new VQ-based uptrends, it makes the decision a heck of a lot easier.

Now, let’s move on to a critique from Vince C.:

Hi Keith,

You sent out an article today entitled “These yields won’t last long.” Both companies, Hershey and PepsiCo, are in the Red Zone!

Perhaps you can understand why subscribers sometimes get a little confused. On the one hand we stick to our trailing stops and on the other you recommend the same stocks as a buy!

Thank you for writing in, Vince.

This is a fair criticism… So, let me share why I back Lucas’ analysis and explain what’s happening with these two stocks.

Our contributing editor, Lucas Downey, looked at these two beaten-down stocks from a different perspective than what would normally be our first step with the TradeStops Health metrics. To be clear, you are correct. Pepsi hit the Red Zone on Nov. 19 and is awaiting a new Entry Signal. And HSY hit the Red Zone on Nov. 7. We published Lucas’ article on these two stocks on Nov. 21.

As a reminder, the stoplight system in TradeStops is a momentum system. The best thing it does is helps us to get out of our own way… sidestep our own emotions… and make regimented decisions.

Those decisions are typically around buying a stock, position sizing it, and knowing when to sell. And I want to remind everyone the most important thing about investing – having a plan!

OK, so going off TradeStops’ stoplight system rules, neither HSY nor PEP are currently a buy. They haven’t been in what our Smart Moving Average deems a confirmed uptrend signaling a green light.

At the same time, TradeStops is not necessarily the only tool we should ever rely on when we make investment decisions. Especially when initiating a new position.

And when it comes to two safe, large-cap names like Hershey and Pepsi, I’d argue it’s worth looking a little deeper into whether this rare pullback in two conservative stocks was overdone.

Lucas believes there’s plenty of hidden value in both stocks right now. And he uncovered that through his advanced method of analysis.

He looks for unusual, special situations related to short-term price action that can signal positive forward returns when you look back through previous times it’s happened in history.

What Lucas found in this case was that both HSY and PEP exhibit positive forward returns when their dividend yield hits a certain level. That clearly is not the same thing as a TradeStops Entry Signal. TradeStops still does not consider either stock a buy right now.

But Lucas’ analysis was still very much in the spirit of what we do at TradeStops – he used data to prove his case. And because of that, I can confidently say the analysis has merit.

I don’t mean to sound contradictory here. TradeStops is an important tool, and you should follow it.

At the same time, though, you should consider putting these two stocks on a watch list to get alerted when they turn green. Please, I urge you, follow your plan that you always put in place. Here, you have two options if you’re interested in buying: That’s “buy now” – or “buy when green.”

What Lucas is doing is giving you a perspective that is backed by strong evidence.

Lucas’ track record with this type of analysis is also incredibly strong, with several great calls this year on small-cap stocks, seasonal buying opportunities, individual market-beating stocks like Deckers Outdoor (DECK) and Booking.com (BKNG), and a ton more all from just this year.

Lucas’ style of analysis is valuable to TradeSmith, and you should heed it when it hits your inbox every Tuesday and Thursday.

That’s it for today… but we’ve got lots in store for you in December.

And tomorrow we’ll be bringing you an exclusive interview with Jeff Clark of Omnia Research about one of my favorite topics: low-risk options strategies.

In the meantime, please enjoy your holiday weekend, be sure to count your blessings (I know I will), and I’ll be back with you next week.

All the best,