Why You Should Buy the Tariff Deal High

By Michael Salvatore, Editor, TradeSmith Daily

In This Digest:

It took just one day to see a prime case of hyper-finance…
This trend will only accelerate…
Why the China rare earths deal is a huge… deal…
Should we buy the trade deal rally with stocks overbought at new highs?
Seasonals only strengthen the case…
TradeSmithGPT access is closing up soon…

I swear, I don’t have a crystal ball…

The timing just couldn’t have been better.

On Friday, the morning I published my thoughts on what could be the biggest investment theme for the rest of the 2020s, I came across this news article showing… direct proof of what I was talking about.

From a Forbes article titled “First-Ever SpaceX Shares Now Available Through Blockchain” (my emphasis in bold):

This week, investment platform Republic unveiled an industry first: blockchain-based fractional shares of Elon Musk’s private space company, SpaceX. For the first time, retail investors – those without institutional backing or venture capital credentials – can gain exposure to one of the most sought-after private companies in the world.

[…]

There’s a catch, however.

These tokens don’t confer voting rights or governance control. Investors won’t have a say in SpaceX’s strategic direction or Musk’s next launchpad move. What they do get is exposure to the company’s valuation growth – a potentially lucrative proposition, especially for those priced out of private equity until now.

Republic’s use of blockchain here isn’t window dressing. By putting these fractional shares on-chain, the platform delivers transparency, portability, and lower friction than traditional private equity deals. The move also bypasses many of the compliance headaches associated with traditional investment vehicles.

This is hyper-finance in action. We should need no further proof that we’re sitting in the front row of a grand and consequential experiment in markets.

What if retail investors can get near-immediate access to once off-limits private ventures?

Even if they don’t gain governance from their investment, will it matter? The price will still “mirror” that of private shares in SpaceX, meaning they can participate in the growth.

Which company will have the stones to do it next?

And importantly: What else will be tokenized and offered up as an investment opportunity?

It may be easier to ask: What won’t?

I’m confident we’re about to find out.

If you haven’t already read my piece from Friday on hyper-finance, I encourage you to. For reasons I explain there, things like this will play a big role over the next six months in particular, but also for the rest of the decade.

It’s all building toward a major dot-com-style bubble… which we’re just seeing the beginnings of today.

And you don’t even have to take the risk and buy the beta test with SpaceX right now.

There are plenty of plays in traditional crypto (now there’s a phrase!) and in the equity markets.

(Speaking of, this afternoon I’ll be building out a new sector-based portfolio rotation strategy… this time, appropriately, on tech stocks. Stay tuned.)

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But there’s plenty more to talk about today…

For one, the Trade War of 2025 may be nearing its end.

Howard Lutnick took to Bloomberg for the biggest piece of news on trade since the China tariffs were paused back in May and negotiations began in earnest. Here’s Bloomberg:

The U.S. and China finalized a trade understanding reached last month in Geneva, U.S. Commerce Secretary Howard Lutnick said, adding that the White House has imminent plans to reach agreements with a set of 10 major trading partners.

The China deal, which Lutnick said had been signed two days ago, codifies the terms laid out in trade talks between Beijing and Washington, including a commitment from China to deliver rare earths used in everything from wind turbines to jet planes.

“They’re going to deliver rare earths to us” and once they do that, “we’ll take down our countermeasures,” Lutnick told Bloomberg News in an interview.

Then on Friday, the EU confirmed it was also set to sign a trade deal with the U.S. ahead of the July 9 deadline.

The terms of the deals are not yet public. But Lutnick’s emphasis on rare earth minerals should signal something important to investors.

Rare earth minerals are an essential component of technologies spanning semiconductors, digital storage, batteries, EVs, robots, and more.

A key use is in creating magnets, which in the case of robots, are critical for creating efficient actuators that let robots turn energy into motion.

The emphasis on rare earths as part of this trade deal was key to this administration because of how key robots are to the future economy.

As we laid out a few weeks back, the Stargate project looks on its surface to be about AI as we know it today, but is really a high-tech interstate to proliferate AI into robots.

So, presuming the trade terms are indeed favorable, this could wind up a broadly positive macro-level signal for markets and tech.

But we should also look at things from a price perspective…

In markets, it’s hard to go wrong buying the rumor.

Buying the trade deal rumor was as simple as buying stocks when the China tariffs were paused on May 12. The S&P 500 is up more than 5% since then in a little over a month.

Buying the rumor of the rumor, back on April 9 when the U.S. paused most reciprocal tariffs, was even better. The S&P 500 is up more than 12% from then.

However, the rumor is turning into news. And investors have heard “buy the rumor, sell the news” so many times they might be starting to feel a little anxious about the recent break into all-time highs.

But contrary to popular opinion, buying the news is not always a bad idea.

I wrote in January of last year a piece titled “Buy the Rumor, Buy the News, Buy Some More” all about the bitcoin ETFs. That proved prescient, with bitcoin up 150% from then.

But this is stocks we’re talking about. If we’re buying the news via the S&P 500, we’re not just buying the news at all-time highs. We’re buying the news with stocks in overbought conditions, with a Relative Strength Index (RSI) above 70.

That can’t be a good idea… could it?

It could…

I went back and looked at what happened when the S&P 500 was trading at new highs and the RSI was overbought. It’s less likely than you might think. Assuming a 21-day holding period and ignoring signals during these times, it’s happened just 77 times since 1990 – on average just two times a year.

What happens next confirms we shouldn’t fade new highs with powerful momentum…

More than two-thirds of the time at 67.5%, stocks were higher 21 trading days after this signal. On average, returns were just 0.8% counting wins and losses. The average loss and average win were almost equivalent: -2.5% and +2.4%, respectively.

So history shows overbought all-time highs are actually a solid buy signal… And this time around, if stocks tack on another 0.8% 21 trading days from now, that puts the SPDR S&P 500 ETF (SPY) at about $621 per share by July 29.

And that’s not the only bullish tailwind right now.

Seasonals are also bullish for the next month…

Take a look at our SPY seasonality going back 15 years. On June 24, we entered a new Green Zone on our seasonality tool. Over the past 15 years, SPY has risen 100% of the time from June 24 to July 29 for an average return of 3.7%:

Post-election seasonality is actually even better. From today through the peak on Aug. 3, SPY has gone up 100% of the time through the last eight post-election cycles for an average return of 4.23%:

Mind that peak, though. Starting Aug. 3 begins a nasty late summertime slide that has historically taken stocks down almost 2% on average from Aug. 3-18 with an 87.5% hit rate.

TradeSmithGPT is an incredible tool for the 2025 market…

At this point, if you’re a regular reader, you might be wondering: What does Predictive Alpha say about this, too?

Glad you asked. We get that a lot – seasonality and Predictive Alpha seems to be a very popular combination among TradeSmith superusers.

Now, Predictive Alpha is more geared toward individual stocks and ETFs than indexes since it can give you such specific trades for additional leverage.

So, when you pull up one of the most influential stocks within the S&P 500 – Nvidia (NVDA) – it’s also giving you a pretty short-lived bullish signal…

Through July 14, Predictive Alpha expects 3.3% upside for NVDA, in a pattern that’s previously been accurate 77.3% of the time:

Or how about my hyper-finance thesis?

Well – Predictive Alpha sees way more upside for Coinbase (COIN) at this time. In fact, its expectations have gone up even more since I wrote about COIN last issue.

With the share price taking a dip on Friday, Predictive Alpha now expects 19.2% gains in COIN by July 24:

What sets Predictive Alpha apart from all our other tools, with its new TradeSmithGPT technology, is two things:

You can now interact with the AI. Scroll to the bottom of its Insights report, and you’ll be able to feed it additional prompts according to what you’d like to see next.
It learns and adapts to new conditions as they arise. Day in, day out, it’s teaching itself.

That’s what’s so revolutionary, setting our AI apart from regular old software.

And while we’ve nicknamed our AI tools “TradeSmithGPT,” they do take you a step further than ChatGPT would.

That one is a Large Language Model (LLM), but ours you might call a Large Number Model (LNM). Perfectly suited for “quant” traders like us.

On Tuesday, Predictive Alpha Options will release three top trades from this new technological breakthrough for TradeSmith. Click here to watch TradeSmith CEO Keith Kaplan’s full briefing on the upgrades and get on the list.

From what I hear, the plan is still to take down the world-premiere replay after Tuesday. So check it out while you still can.

Why You Should Buy the Tariff Deal High