The Agony of 2025

February 19, 2025

By Michael Salvatore, Editor, TradeSmith Daily

In This Digest:

Why 2025 feels so agonizing…
The February blues are here…
These are your top downside target sectors…
Why you might get a chance to buy a hot stock on sale…
China’s liquidity bazooka keeps working…
How Andy and Landon Swan’s big consumer focus pays off…

Are you disappointed with the market this year?

If you are, you need to zoom out a bit.

Yes, stocks have been quite a bit more jumpy in 2025 than the accelerated escalator we’ve been used to the last couple years.

We see a lot of “fades” – when big opens turn into sell-offs and ultimately land down or unchanged by end of day.

This is frustrating. But the data is clear. For all the agony, stocks are up quite nicely in 2025:

This time last year, the S&P 500 was up 4.6% YTD. This year it’s up 4.16% YTD.

Why’s it feel so much worse this year? Simple.

Last week’s action put in new highs for the first time since December. Last year, we were charting new highs basically every other day.

So while stocks are up quite a bit year to date, your portfolio probably isn’t up much at all from the most recent high… and might even be down if you’re holding the wrong stuff.

Now, despite those new highs we’re finally seeing, I see reasons to think we’ll have more volatility here in the back half of February.

First off, we’re right up at the upper resistance line on the SPDR S&P 500 ETF (SPY). That’s acted as a formidable barrier going all the way back to the post-election euphoria rally in early December. It hit it again in January and early February of this year:

Today’s (Tuesday’s) action so far isn’t encouraging. Writing at around noon, we’re rejecting from the resistance line and trading lower from the open.

There’s more warnings in the Relative Strength Index (RSI). While SPY has been climbing, the RSI has charted a series of lower highs. That’s a mild momentum divergence that suggests bulls aren’t following through.

A break above the top line, around $611, changes the game here. That would be a breakout worth celebrating.

But until we get that, we have to contend with the possibility that SPY will trade back into the $590 area once again.

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And February seasonality agrees with the bear case…

Since inception, SPY has started to fall right around now and lasting through mid-March. Take a look at this chart of SPY seasonality, part of our Trade Cycles software:

From the peak on Feb. 15 through March 12, the S&P 500 has fallen an average of -0.73% on 15 out of 32 years. Now, that’s a bit of a toss-up. But with the way the chart looks above and how chaotic the year so far has been, I’m gonna lean bearish here.

So, if the S&P 500 is going to fall from now through March 12, which stocks should we target as part of that broader sell pressure?

Seasonality data can help guide us. Here’s the worst-performing S&P 500 sectors for the coming bearish period:

Industrials (XLI), Materials (XLB), and Tech (XLK) are the worst sectors to hold through this period. Energy (XLE) is arguably the best, with a 65% rate of positive returns and the only sector with an average trade result (counting wins and losses) that’s positive.

So, let’s focus on Industrials. Of the top 10 stocks in the Industrials ETF, which have the worst seasonal patterns?

If you feel like you missed the boat in Uber Technologies (UBER) – it’s up 25% over the past couple weeks – you might be in luck. Over its relatively short time as a public company, UBER has traded lower through March 12 3 out of the last 5 years for an average result of -12.3%. The average loss is even worse, at -22.13%.

But for something more statistically significant, look at Union Pacific (UNP). Over 42 years, the stock has traded higher just 42.9% of the time through this period and delivered an average loss of -5.04%.

History doesn’t repeat, but it often rhymes. And that core intuitive truth is what rings through our seasonality strategies here at TradeSmith.

We have the data to make smart decisions about where stocks are going. And we’ve developed a fantastic strategy that uses signals like these to beat the market.

On a rolling 15-year backtest, this technique doubled the S&P 500’s return. And that’s by just trading stocks… no leverage whatsoever.

If you’re not already a part of Trade Cycles, go here for more info. Since we launched, 14 out of 23 positions have been winners, including an 8.3% gain on Booking Holdings (BKNG) that correlated to 124% on a BKNG call option. Seasonal Edge even bravely bought into the big sell-off in Nvidia (NVDA) at the end of January – and made 9.9% on the shares, plus 45% on its NVDA call option.

Here’s another good reason to ignore the headlines…

When Donald Trump won the election, Chinese stocks ran in the opposite direction of U.S. stocks. The reason is clear: Investors were worried about tariffs.

But something funny has happened more recently. From the start of the year, Chinese stocks (blue line below) are up more than 15%. And they’re beating U.S. stocks (red line below) not just since the start of the year, but since the election:

This comes at a time when tariffs are no longer just a threat – they’re a reality.

What’s going on?

Regular readers know. It’s the liquidity bazooka. As we wrote you back in mid-December:

While investors are running away from long-term U.S. government debt and piling into stocks out of simultaneous fear for entrenched inflation and expectations of private market growth, investors are doing just the opposite for China. Investors are piling into Chinese bonds because they fear deflation and deep economic pain.

Indeed, China’s stock market is feeling the pain. Since the euphoria of its first “liquidity bazooka” back in late September, Chinese large caps are down more than 16%. U.S. stocks, meanwhile – the envy of the entire world – have added another 7% in value[.]

[…]

China’s set to unleash even more economic stimulus to prop things up. This is good for risk assets in general (like stocks) but especially global risk assets (like bitcoin). More liquidity means more money will be out there seeking returns.

[…]

Chinese stocks are a careful speculation. Lower borrowing cost in Chinese markets should lead to growth in well-managed Chinese companies. But as is always the case in China, there’s a ton of political risk in the country, and the economic trends point toward deflation and consumer weakness. If you’re going to play around here, stick with proven tech firms.

The iShares China Large-Cap ETF (FXI) is up more than 17.5% from when we sent you this.

Lesson to be learned is this: Huge government liquidity programs are a big, flashing neon sign to buy. That was true in 2020, and it’s just as true today. And it’s why, as I explained last Friday, you have to lean bullish.

China is a bit overbought today, but not nearly as overbought as it was after the first liquidity bazooka in September. The rally still likely has some legs, but be mindful of any stalls below the local high of around $37 per share on FXI.

Andy and Landon Swan have a handle on the consumer like no one else…

They have a quantitative system that scans the internet and social media for consumer sentiment on a wide array of stocks.

And this sentiment leads them to some seriously big gains.

Just recently, the Swans (as they’re commonly known around the TradeSmith offices) booked a more than 200% gain trading call options on Robinhood Markets (HOOD) earnings. (Disclosure, I own HOOD at time of writing.)

Everything they access is publicly available. So, normally I’d say they didn’t know anything more about HOOD earnings than anyone else did – but that wouldn’t really be true.

Because, just like they do with so much else, these two brothers used their LikeFolio Data Engine to distill the sentiment and fundamentals of HOOD into a clear signal that told them to get bullish on earnings.

The Swans divide their sentiment data into Demand Growth and Happiness Growth. When that lines up with a positive Earnings Score, they know to get positioned for an upside surprise.

Here’s the breakdown of their weekly earnings scorecard, where HOOD showed up as a standout trade opportunity:

And this is one of many stocks that make the scorecard every single week. Shopify (SHOP) and Crocs (CROX) were also strong picks in the scorecard, and both crushed earnings:

I can’t tell you how many times I’ve seen a headline-grabbing earnings report, go over and check the scorecard, and sure enough the Swans were well ahead of it.

To learn more, check out what Earnings Season Pass is all about right here. We’ll be featuring their work much more often here in TradeSmith Daily, so keep an eye out for their social insights going forward.

To your health and wealth,

Michael Salvatore signature