Escaping the News Cycle Spiral

February 5, 2025

Escaping the News Cycle Spiral

BY KEITH KAPLAN
CEO, TRADESMITH

It’s funny…

Last week, the crisis du jour was the new Chinese AI app DeepSeek threatening to upend the tech market with its low-cost breakthrough.

This week, it was tariffs on Canada, Mexico, and China, and eventually the EU. Oh… Except the Mexican and Canadian fronts of the trade war are now postponed a month.

It’s a lousy time to be a news consumer…

Or worse, someone who tries to trade the news!

If you listened to the media and got bearish on tech after the market panicked over Chinese AI, you lost money. The Nasdaq 100 is up almost 1% from last Monday’s open.

If you listened to the media and decided the market was going to crash this week because President Donald Trump instituted his widely expected tariffs, you lost money. The Dow Jones Industrial Average is more than 0.3% higher from today’s opening level and more than 1% higher from the lows.

Do you see the theme here?

Trading the News Is a Terrible Strategy

Chasing the news is like chasing tornadoes. You’re putting yourself in immense danger… stressing yourself out… And the only reward is spectacle.

On the other hand, when you focus on data and price action like we all do at TradeSmith, each day brings a new challenge and something to get excited about.

Not to mention, you get to make a ton of money by tuning out the news, watching the data, and taking advantage of this volatility.

Know the saying “cooler heads will prevail”? That was true this week, and it’s basically always true.

If you can train your mind to ignore all this headline craziness, you stand to not just trade much more effectively… but also live an easier, more stress-free life.

Quite honestly, I was going to start this essay writing about the tariff news and how it’s going to affect the market.

But I realized… That would be chasing headlines.

Plus, by the time you read this, the story could be entirely different, and there’d be no point writing about it.

So instead, I’m going to do something very simple, and of actual use to you.

We’re going to use TradeSmith’s software to see which stocks are actually under threat right now… and not for any headline-driven reason.

Then, we’ll see which stocks just entered the buy zone – a green light you can use to put some cash to work.

Data-Driven Breakdowns and Breakouts

When I see the market under fire like it was the past two weeks, I want to know two things:

Are the majority of the individual stocks that make up these markets suffering, or is it largely contained to the benchmark itself?
Which stocks in these markets are breaking out or breaking down?

The first question is easy to answer. We have all the details on the Markets page in our software platform TradeSmith Finance.

Zooming in on the S&P 500, we get this view:

This shows you the level of the S&P 500, its stop-out points determined by TradeStops, and most importantly the number of stocks within that index that are in the Green, Yellow, and Red Zones.

We can see above that the number of Red Zone stocks has hovered around 30% since August – there’s been no meaningful expansion there.

Similarly, if you were expecting a ton of stocks to fall out of the Green Zone on DeepSeek and tariffs… Their number has barely budged, as you’ll notice above.

Overall, Green Zone stocks made up 54% of the index in August, they’re at 57% today, and the high was a reading of 73% in mid-October. It’s a great example of how events in the market don’t always play out the way we feel like they’re going to.

Lately, we’re seeing a bit more caution, with the number of Yellow Zone stocks expanding from November through today. That’s worth keeping an eye on, but we really can’t be wary of the market while most stocks are still on the up-and-up.

Now, what we can do next is click on those binocular icons and see which S&P 500 stocks recently entered the Red Zone. Here are the top 10, sorted by most recent Red Zone entries:

There are some major companies here, all entering new downtrends to start the year.

Look at $41 billion utilities company PG&E (PCG), down -22.45% over the last month.

Look at $127 billion Comcast (CMCSA), down -9.56%.

Look at $147.2 billion NextEra Energy (NEE), down a smidge over the last month but in a downtrend nonetheless.

All of these companies are priced cheaply, but they’re cheap for a reason. They’re losing investors’ money during a bull market.

Now, let’s turn it around and find the stocks that just flashed new Entry signals. Turns out, it’s a small club:

Only two S&P 500 stocks, electronics manufacturer Jabil (JBL) and agricultural machinery firm Deere & Co. (DE) have recently entered a new Entry signal. And both have done so in the last seven days, some of the most volatile of the year so far.

Here’s another cool thing about DE… According to our Seasonality software, it’s in the latter stages of a seasonal pattern that’s seen its stock price rise 80% of the time over the last 15 years, with average gains of 4.7%:

That’s coincided nicely with its recent climb higher and new Entry signal. But look out for its seasonality pattern for the rest of the year, too. It’s fallen an average of -3.53% from May 3 to May 18, and was lower 13 out of the last 15 years.

So, with just a few minutes of work on my part and a few minutes of reading on your part, you now have a lot more useful information than you’re finding in, say, the latest screed on tariffs in The Wall Street Journal.

Here’s the thing about the market…

No matter the narrative reason for a drop one day or a surge the next, our data will always show you whether what you’re seeing is normal or not.

Things have felt seriously crazy the past two weeks. But the simple fact that the S&P 500 is still in the Green Zone means that all this craziness is really just the normal bounds of volatility.

Just like I said last week, don’t let media narratives spin you out of control. Let data do the talking and stay the course.

If you do drop any stocks, make it the ones that just don’t measure up, as I showed you how to do before.

And for all your positions, just stick to your exit plan whatever it may be. If it’s TradeStops, follow the stops there. If you have your own methods, use that.

And finally, remember that most often these volatile swings turn out to be great buying opportunities in retrospect. That’s hard to remember in the moment, but we just had a lot of practice. Let the next swing be one of those opportunities to you.

Now, don’t you feel a whole lot better after seeing my Market Health chart than you do with another story about the trade war?

Instead of dread and uncertainty, you get a sense of clarity and opportunity. That’s what I love best about my role here at TradeSmith.

Before I Go… a Peek at the Inbox

Thanks to everyone who wrote in last week, by the way. The vast majority of you report having passed last week’s test with flying colors.

We heard from dozens of readers on this topic, and:

Very few of you sold last week, like Jim V., who sold a couple of laggards (but kept the techs).
Plenty of you bought stocks (or traded options betting on a reversal) last week, like Peggy Ann P., who said, “All the red in the portfolios was a shock, not fun,” but did take the chance to buy large-cap techs on sale.

I was touched when Peggy then added, “I love being a Platinum member, yet glad you would help *all* your members if your indicators ever say it’s time to duck and cover.”
And many of you held tight, like Brian B., who said, “Keith… Out of all the newsletters and publications I currently subscribe to – you are the only one to come out and comment so usefully on last Monday’s bloodbath. I have hung in… and am very reassured by your comments about letting us all know if you feel at any time the Bear is coming!”

Those are a few of my favorite emails (edited for content, clarity, and privacy). Clearly, our readers know how to trade the market…

All the best,

Keith Kaplan signature