The Dust Has Settled… Here’s What to Buy

March 26, 2025

The Dust Has Settled… Here’s What to Buy

By Michael Salvatore, Editor, TradeSmith Daily

In This Digest:

Five years ago, the world shut down…
We’re getting a similar “dust settling” signal today…
Three lines form the market pain chart…
Our Screener can show you where to start shopping…
The Swans’ Tesla call quickly paid off…
A special broadcast from Keith Kaplan you shouldn’t miss…

Five years ago, the world was reeling from peak pandemic hysteria…

Schools, businesses, and public outdoor spaces were indiscriminately shut down. We were told to “shelter in place,” have our groceries delivered, and wipe them down with disinfectants before bringing them into our homes. We were mandated to stand six feet apart from each other in line at the pharmacy.

Neighbors avoided neighbors, not wanting to socialize for fear of getting sick. Anyone with the gall to have a simple conversation might be accused of being a “superspreader.”

In the world of markets, everything was even more upside down.

From peak to trough, the S&P 500 fell by more than a third in the span of a single month before hitting bottom. The Mag 7 were all trading for fractions of their current value. A few months later, oil would be so hated that suppliers were briefly paying buyers to take it off their hands.

This all happened presumably because, as people tend to do, everyone imagined the current situation would extend infinitely into the future.

It doesn’t feel all that long ago. Probably because it was such a transformative, disruptive moment that will stick with all of us the rest of our lives.

But in retrospect, this insane, brief moment in time was a generational wealth-building opportunity… even though few saw it as such. The S&P 500 is up more than 126% from the pandemic bottom.

And the biggest signal was when the Federal Reserve slashed interest rates to zero and effectively doubled the U.S. money supply in a matter of months.

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That was the “dust settling” moment…

When there’s a cacophony of negative extremes, in both sentiment and action, it feels weird to say to yourself: “This ought to be the stock market bottom.”

But as we recently put it, buying the “darkness before the dawn” tends to be a good strategy.

We just experienced another similar, though milder bout of volatility across the market. Indices are down about 10%, driven by fears of tariffs dismantling the economic status quo.

And just recently, we experienced a similar, though milder dust-settling moment.

In sentiment, we can look at things like the Conference Board’s Consumer Confidence Index. That just hit the lowest level since… well, would you look at that, 2020:

With inflation moderating and the labor market holding steady… Folks are not all that confident in the economy.

They’re not too confident in the stock market, either. From the same survey:

Likely in response to recent market volatility, consumers turned negative about the stock market for the first time since the end of 2023. In March, only 37.4% expected stock prices to rise over the year ahead – down nearly 10 percentage points from February and 20 percentage points from the high reached in November 2024.

[…]

Meanwhile, average 12-month inflation expectations rose again – from 5.8% in February to 6.2% in March – as consumers remained concerned about high prices for key household staples like eggs and the impact of tariffs.

This is a major sentiment signal. And if you think consumers’ opinion about the stock market has nothing to do with their opinion about the economy, think again.

You feel richer when your stocks are up, don’t you? Even if you have no plans to sell, don’t you feel like you can spend more freely? Not to mention more secure in your job and in your future?

We’re seeing that same dynamic at play here. People feel poorer because stocks are down, even though they’re only poorer on paper.

And just look at the recency bias at play. People are as pessimistic today as they were in 2015 when inflation was below 2% and stocks were making new highs. The last few years of extremely strong stock market and economic performance have spoiled investors and consumers alike.

That’s the sentiment signal. And the action signal is what we talked about Friday, with the Fed’s hidden rate cut boosting the liquidity trend upward.

The bottom line is that we’re at another one of those major wealth-building moments. If you haven’t already been buying stocks over the last week, this is your cue to do so.

Let’s just check in on how the chart looks…

A wise trader once told me (one you’ll come to get to know very well, very soon) that stock charts are pictures of traders’ emotions. They are not displays of efficient information so much as they are displays of inefficient, knee-jerk reactions.

That’s why things like consumer confidence can correlate so heavily with the stock market. These things feed off each other.

Let’s see exactly what’s going on in the chart of the S&P 500 ETF (SPY):

Here I’m using weekly candles to give a better view of three distinct trend lines.

The red dashed line acts as firm upside resistance. When stocks get to that level, investors tend to start selling them.
The middle black line is downside support. Buyers have stepped in to buy at that level all through 2023 and 2024, with those buys leading to longer-term rallies.
The green line is a shorter-term, can’t-miss buy zone. That line goes back to the 2023 summer top, where it began as upside resistance and has since turned into widening support.

We can think of each line as something like the pain chart they show you at a hospital.

When you’re at or near the red line, you feel sublime, and the doctor (the market) needs to tone down the medication (the upside momentum.)

When you’re at the black line, you’re in pain, and the doctor needs to up your meds.

And if you’re ever at the green line, you might have to argue with the doctor to resuscitate you, because he’ll assume you’re already dead.

Investors were successfully resuscitated two weeks ago. They stepped in at a level just above the green line and pushed the red candle up into a “hammer.” This forms when the intra-week low is much further down than the closing low – a bullish signal.

The next week, we got an upside-down hammer where we tested the black line on the upside during the week, sold off a bit, and still closed green. That was another good sign. And this week it’s paying off, with us rising above the black line intra-week.

And we should expect more upside to come.

On Monday, inspired by our own Lucas Downey, I shared my study about what happens after the Nasdaq 100 closes down four weeks in a row.

The S&P 500 data is just as encouraging, with six-month returns after snapping a four-week down streak clocking at 14% on average, and a win rate of 70.8% over the entire history of the SPY ETF.

Let’s see what that would look like on the same chart…

To make a long story short, I don’t think I’ve been as confident in a market recovery since I was feverishly buying bitcoin and oil stocks exactly five years ago in March 2020.

If you’re with me, let’s get a quick shopping list together…

TradeSmith’s software makes shopping for stocks incredibly easy.

You can shop by market, sector, valuation, momentum, and virtually any other metric you can think of.

For our purposes today, I’m looking for two things.

Stocks with high relative strength, which we’ll determine as stocks that have stayed in our Health indicator Green Zone through the recent patch of volatility…
And stocks that rate highly on Jason Bodner’s Quantum Score. This score tallies up all the best numbers for business growth and technical momentum, driven by major Wall Street institutions.

Here’s the list that came back from our Screener software on these metrics:

All of these stocks have held their Green Zone trends for more than a year, despite the fact that in some cases – for mid-caps and small caps – the indices that govern them recently entered the Red Zone. That’s high relative strength.

And all of them rate highly on Jason’s Quantum Edge system, which is the best way to find high-growth, high-quality, and high-momentum names.

Consider this your shopping list for the bounce…

In other “sentiment bottom” news…

You might’ve seen a clip going around of a certain former vice presidential candidate publicly celebrating and encouraging others to celebrate the decline of Tesla’s (TSLA) stock price. (Disclosure, I own TSLA at time of writing.)

This comes at a time where protestors are actively setting fire to cars at Tesla dealerships and vandalizing owners’ cars across the country.

So, setting aside the questionable judgment of such a move from the former potential VP… This looks like another one of those sentiment bottoms.

You either look at this as a great time to buy or you don’t. If you ask Andy and Landon Swan of LikeFolio fame, though, it was a fantastic time. Here’s a note I received from them just yesterday morning:

Tesla shares rallied over 10% Monday in one of the sharpest moves higher we’ve seen in recent months.

The stock has been under pressure for much of 2025, but the tides are changing now that the Trump administration may implement more narrowly focused tariffs. This helped ease concerns about trade-related disruptions, particularly for global manufacturers like Tesla.

CEO Elon Musk’s all-hands meeting seemed to pay off, too. Late last week, Musk encouraged employees to hold onto their stock and reaffirmed Tesla’s long-term bets on autonomous driving and robotics. His message appeared to resonate with retail investors, who remain a major force in the stock’s trading volume.

LikeFolio’s real-time consumer insights confirm Tesla interest is accelerating – digital traffic is up 14% year-over-year on a seven-day moving average while other peers lose steam:

In Sunday’s issue of TradeSmith Daily, we made the case for TSLA as a must-own stock for the autonomous future – talk about a quick payoff!

We’ll continue sharing Andy and Landon’s insights right here in TradeSmith Daily.

To wrap up, this is a major day in TradeSmith history…

In just a couple short hours, our CEO, Keith Kaplan, will go live with what we’re calling The Big Reveal – a can’t-miss event that’s both about the past 20 years of TradeSmith history… and a big change we’ve been building up to for the last several years.

I wouldn’t want to spoil The Big Reveal itself. But what I can say is that it’s the biggest expansion to TradeSmith – ever. And savvy and dedicated newsletter readers might be able to read between the lines of today’s Daily to get an idea of what we’re about to release.

Keith is also taking us way “outside the box” in our 20th year regarding how you currently subscribe to various TradeSmith products.

Save your seat here to hear The Big Reveal directly from the man himself at 10 a.m. Eastern. Once you do, let us know what you think, since certain aspects have become controversial behind the scenes.

To your health and wealth,

Michael Salvatore signature