Big Shake-up in Market Leadership

February 7, 2025

Big Shake-up in Market Leadership

By Michael Salvatore, Editor, TradeSmith Daily

In This Digest:

It’s time to find the new leaders…
All about the Big Money…
Google’s revenue miss and what could come next…
The next move in TSLA will be key…
The truth about this crypto cycle…

In times like this, you need to seek out the new leaders…

It’s hard to love a market that’s range-bound and freaking out about every other headline.

That is, until you look deeper and spot the new opportunities taking shape…

First, take a look at this. Despite all the wild moves over the past two months, let alone the last two weeks, stocks are right at the same level they were in late November:

We’ve seen a lot of buying interest at the bottom rising support line, and plenty of selling interest at the top resistance line around $610.

Until that changes, we’re in consolidation mode. We’re still working off that post-election euphoria.

In conditions like this, it gives new leading sectors and stocks a chance to emerge. We can already see that sort of behavior in the ratio charts.

Take a look at this view comparing the relative performance of Financials (red), Health Care (purple), and Tech (blue) against the market since the start of November:

What you’ll notice is that the ratio of Financials vs. the broader market is up 6%… The relative performance of Health Care dropped as much as 10% before recently recovering… And Tech vs. the market is in somewhat of a downtrend… revealing a pretty direct inverse correlation with Health Care.

That’s one clue about where to seek the best returns. As Tech gets weak, Health Care is getting stronger.

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The Big Money is another…

One of my favorite resources at TradeSmith is Jason Bodner’s Quantum Edge Hotlist.

This list contains all the stocks with growing earnings and revenues… along with strong technical patterns and unusually high buying volumes.

Jason publishes this list to his subscribers every Monday, and it’s part of my routine to get a sense of where the money is flowing.

And, wouldn’t you know it, the top of the list is rife with Health Care stocks…

The top three stocks on the Quantum Edge Hotlist are all biopharmas… with other names like Boston Scientific (BSX) and Doximity (DOCS) rounding out the Health Care side.

Apart from that we have ExlService Holdings (EXLS), a data analytics service provider… and asset manager Ares Management (ARES). But really, Health Care is the standout here.

This is one of the bigger shake-ups I’ve seen in the Hotlist since I’ve been watching it. Over the past several months, the weekly list has been dominated with the kind of names you’d expect: Apollo Global Management (APO), Palantir Technologies (PLTR), Nvidia (NVDA), Google (GOOGL), and more.

Now we’re seeing the money broaden out… and specifically out of tech.

That, in addition to the names above, is worth noting.

And if you’d like to get these names in your inbox the moment they come out, with the next list dropping on Monday afternoon, go learn more about a Quantum Edge Pro membership here.

There’s more evidence of a bearish bias on tech…

Or, at least, a reason to take profits. Here’s Barron’s with the key details on Google’s recent earnings report:

Alphabet stock tumbled in early Wednesday trading after earnings from the owner of Google beat Wall Street expectations but fell short on revenue.

[…]

Cloud revenue growth decelerated in the fourth quarter, jumping 30% from a year earlier to $12 billion after a 35% rise in the previous quarter. It also missed analysts’ estimates of $12.2 billion.

(Disclosure, I own shares of GOOGL at time of writing.)

Investors clearly weren’t impressed with Google’s revenue miss and used it as an opportunity to send the stock initially down more than 8.3%, one of the largest declines in market cap since NVDA’s DeepSeek rout last week.

As I write, it’s recovered slightly, with just a 7.3% decline. That’s still significant, and it shows just how willing investors are to shed tech exposure on any hint of relative weakness.

It’s a big decline, in any case, and it’s worth looking at more closely.

GOOGL stock has fallen more than 7% in a single day just 19 times before, going back to the first signal in 2004. Here’s how those drops shake out in the near and longer term.

The next day, shares are higher 52.6% of the time but with an average trade (counting wins and losses) of just 0.08%.
Five days later, shares are higher just 38.9% of the time and for an average trade of -2.3%.
A month later, shares are up 47% of the time and see an average trade of -1.4%.
But here’s where the good news really kicks in. After three months, the win rate skyrockets to 86.7%, and the average return is more than 9%. That would be enough to put the stock back at all-time highs. Even better, the average winning trade after this signal is up more than 13.4%.

That would also line up nicely with Google’s next earnings report, scheduled for April 29.

Some of the big moves in tech have been drastic lately, with nervous investors selling first and asking questions later.

But the facts remain: These businesses are successful for a reason. They make some of the highest revenues in the world, and are all leaders in the biggest tech trend of the moment, artificial intelligence.

Major single-day moves like what we saw in Google, Nvidia, and other companies recently are opportunities worth acting on.

Another big opportunity is shaping up right now…

And that’s what you might call the “post-tariff rebound” trade. Markets plunge when the Trump administration announces tariffs on a certain country… A deal gets struck avoiding said tariffs… And prices surge back higher.

There’s no better example of this than in the fast-moving world of crypto…

Prior to Saturday’s tariff action against Mexico and Canada, bitcoin was above $100,000.
Over the weekend, it plunged to about $93,000.
Then, lo and behold, both countries caved to President Donald Trump’s policy demands Monday… The tariffs were postponed by at least 30 days… And bitcoin popped right back through $100,000.

This cycle is very likely to repeat since the tariff strategy is getting real results for the Trump administration.

And the moves are even more extreme among the altcoins.

Over at InvestorPlace, Luke Lango released three new crypto trades yesterday for this breakout rally – for free – during his Great American Crypto Project presentation.

Click here to watch the replay, where Luke discusses the predictable pattern his quant system uses to find uptrending cryptos with triple-digit profit potential.

To your health and wealth,

Michael Salvatore signature