Volatility Sets Up a Black Friday Trade By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - We call them Power Factors for a reason…
- The latest Quantum Edge ratings show a huge dichotomy…
- The name of the game is breakouts, and here’s one to watch…
- Will you spend money this Black Friday… or make money with this one-day trade idea?
Power Factors are easy to understand but strangely hard to follow… When you buy a stock, what do you hope will happen? The answer seems obvious. You want it to go up. Every rational investor begins a relationship with a stock this way. But something funny happens here – both before, in the selection process… and after, once the stock shows its stuff. Beforehand, investors cringe at the idea of buying stocks that have already gone up a lot. This is a mistake, but I get why people make it. As consumers, we’re trained not to buy that widget we want when we know it was cheaper a few weeks or months ago. We seek deals in nearly all the spending we do. Then, when we start investing, we keep this same frame of mind. We hear phrases like “be greedy when others are fearful” and think buying stocks in downtrends is a good idea. Truth is, you don’t want stocks that are falling in price. They may seem “cheaper.” But they’re going down because collectively, investors would rather sell it than buy it. On the contrary, you should buy stocks that are going up. We’ve made the case before that you should “be greedy when others are greedy,” and that holds up here. But then, what do we do when the stock we buy falls? We buy even more! We convince ourselves we’re getting a better deal by buying more of a losing position when really we should just cut our losses. Meanwhile, if a stock goes up, we take profits much quicker… failing to see the long-term potential of our good decision. That tendency is so common, behavioral finance researchers gave it a name: “the disposition effect.” One of Jason Bodner’s key Power Factors – positive price action – saves you from the damage this can do… For a stock to be a great buy, Jason understands that it should have strong upward momentum. Continuation of that momentum is only a better sign. And the presence of this factor tends to beget the other two factors – business growth and institutional support. Smart investors only want to buy companies with strong fundamental growth rates. The smartest investors are the ones at the multibillion-dollar institutions, with deep pockets and analytical firepower to find the fastest-growing businesses. When they find great businesses, their buying pushes the stock higher and higher. So those are the Power Factors: - Positive price action
- Strong fundamental growth rates
- Unusually high buying volumes suggesting big money at the wheel
Every Monday here in TradeSmith Daily, I show off the top- and bottom-ranked stocks in Jason’s Quantum Edge system, which is built with precise measures of these three Power Factors. You can find those below. 
But I also want to show you the price action of each of these stocks compared to the broad market. Here, for example, are all the top-ranked stocks this week charted against the S&P 500 from the start of the year: 
What you’ll immediately notice is that every single one of these stocks is beating the market in 2024. Some stocks, like ANET, WHD, and APO, have been part of this list for weeks and months. Now, let’s look at the five bottom-ranked stocks: 
(Glatfelter [GLT] appears to have recently been delisted, so it doesn’t appear in the chart above.) I shouldn’t have to point out the gravity of the difference. The bottom-ranked stocks are all volatile and headed in the wrong direction. Understand, every Quantum Edge-ranked stock uses the three Power Factors in concert. They have positive price action, business growth, and institutional support. What this tells us is you simply cannot have these three important factors along with a stock that’s in a downtrend. It doesn’t compute. So stop buying stocks in downtrends… and start buying Power Factors stocks like those at the top of the list above. To save you the research time on these factors, check out Quantum Edge Pro to get the top 10 (and bottom 5) each week, along with Jason’s model portfolio, videos, and updates on big money moves in the market. Another buy signal to watch is breakouts… We’ve been loving trading breakouts here at TradeSmith. That’s when a stock charts new highs after a period of making slow but steady progress from a smackdown low. When stocks make breakouts, especially breakouts to new highs, it’s a signal that investors are in “price discovery” mode. They don’t know where the price will wind up, other than the fact that it’s higher than where it was before. That’s exciting. It represents pure wealth creation. Everyone who’s ever owned that asset is in profit. That’s a beautiful thing. We’ve talked plenty about the breakouts in bitcoin lately, so I won’t tire you with more. Instead, I’m going to show you a breakout I found in an unlikely place – the boring old fossil fuel company Exxon Mobil (XOM). (Disclosure, I own shares of XOM.) Especially over the past year, XOM has trended higher, charting a series of higher lows. And admittedly, it’s been facing stiff resistance at around the level it’s trading today, $122 per share: 
Call it excitement for the new Trump admin’s pro-fossil fuel stance if you want. But if we zoom out on the chart of XOM, we can see that this breakout has been building from all the way back in 2021, when oil stocks were dead money. And the resistance line traces all the way back to the start of 2023. I expect XOM to break to the upside here. And one good reason why is its Power Factor rating. XOM rates a 67.2 total on the Quantum Score, right in the “sweet spot” zone where stocks are considered a buy: 
This is from our TradeSmith Finance dashboard tool. With it, any subscriber of Jason’s work can look up any Quantum Score they want. And that’s a great score – unusual for a cheap, yielding fossil fuel stock. Take, for example, Warren Buffett’s favorite oil stock, Occidental Petroleum (OXY). That rates a middling 43.1: 
BP is even worse: 
Though another bright spot is in Chevron (CVX) shares (although this stock isn’t anywhere as close to a breakout): 
My big point today is to make sure you’re watching the Quantum Score for the stocks you own or want to own. They can easily tell you if they’re worth your trouble. (That’s part of Quantum Edge Pro, too, by the way.) A one-day trade is coming this Black Friday… The idea of putting on a trade in the morning and closing it out that same day, knowing you could double your money or lose most of it, either delights or terrifies you. For those it delights, I’ll waste no more time. Click here to learn what’s behind a one-day trade coming up this Black Friday, and how you can get involved, in a free webinar tomorrow at 11 a.m. Eastern. And for those in the latter camp, let me tell you three reasons why you’ll want to open your mind to the idea of very short-term trading. - Volatility is a new fact of life. This isn’t your grandpa’s stock market, for better and worse. Companies are doubling in market cap at a faster rate than ever before. 24/7 access to trading platforms is encouraging more impulsive decision-making. And no-fee trading has broken down the barriers for the retail crowd to get involved with more complex instruments.
What you need to understand is that when you learn to harness the power of volatility, this becomes a wonderful thing.
Jonathan Rose, former CBOE floor trader and market maker, can tell you all about that. He doesn’t try to guess the direction of stocks over a 24-hour period. Rather, he looks for unique setups that pay out if volatility rises. That’s a much easier thing to forecast – and it’s what his webinar tomorrow is all about. - Zero-day options let you risk a little to make a lot. All options are like this. Their quality of letting you control 100 shares of stock means you’re effectively controlling the price action of that many shares… but without putting up nearly as much money to do so.
Options can and usually do expire worthless. That means what you put in can quickly go to zero, especially when you’re trading options with less than a day until expiration.
That’s why Jonathan promotes rational position-sizing and risk management, to make sure no bad trade will wipe you out, and that the risk/reward setup on any given trade is in your favor. - If you’ve never traded these before, today is day 3 of a free four-part training series.
Jonathan has been posting these training videos since Saturday, the same day we published our interview with him. If you’re not familiar with options, or even if you are and haven’t yet waded into the zero-day waters, go right here to catch up.
Jonathan will tell you everything you need to know to prep for this week’s big trade on Black Friday, from the perspective of a trading veteran with decades of experience. And finally, one piece of proof that tells me you should get ready to trade this week. You might think of Thanksgiving week as a time where the market quiets down and traders hang up their hats. But the data shows otherwise. Our election year seasonality chart of the CBOE Volatility Index (VIX) shows that from Nov. 25 to Dec. 1, the VIX has ramped 87.5% of the time, or 7 of the last 8 election years: 
It posted an average rise of 7.1% – a highly tradable pop in volatility. Again, if you’re looking to prepare for this trade or even just learn a thing or two about options trading you didn’t know before, go here for the details. I promise it’ll be worth your time whether you decide to join Jonathan for Friday’s trade or not. To your health and wealth,  Michael Salvatore
Editor, TradeSmith Daily | 
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