Watch Our Software Debunk the Meme Stock Mania VIEW IN BROWSER By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - You wouldn’t make a trade based on one signal
- Why big money alone isn’t enough
- Here are the other significant factors that truly matter
- An earnings season double worth celebrating
Brawn isn’t everything… Strategy is what wins battles – a lesson that came into sharp focus for us Americans during World War II, which we can carry into our investing today. On June 4, 1942, six months after Japan’s attack on Pearl Harbor, the U.S. Navy is outgunned and outnumbered. Near Midway Atoll, about 1,300 miles Northwest of Oahu, Hawaii, it’s trying to halt the rapid Japanese expansion into the Pacific. The U.S. could not rely on brute force to win the coming battle. The Japanese had four aircraft carriers in the fray – the peak of military power at the time – to the U.S.’s three. It also had an edge on air fighters, battleships, cruisers, destroyers, and submarines. But we know the U.S. did win the Battle of Midway. In fact, this victory is credited with turning the tide of the Pacific theater and ultimately ending the war. Students of history know that the only hope of winning against a stronger force is a stronger strategy. That’s what the U.S. had. Cryptographic intelligence operatives based in Hawaii were able to tell Admiral Nimitz – the commander in chief of the U.S. Pacific Fleet – the location of the four Japanese carriers ahead of the attack. The Navy set an ambush. Despite early losses, the U.S. managed to dive-bomb the Japanese fleet and set three of its four carriers ablaze within minutes. A counterattack brings down the USS Yorktown, but the damage is done. By the time the sun sets, the Japanese fleet at Midway is all but annihilated. The Imperial Japanese Navy sustained nearly 10 times the human casualties as the U.S. did that day. | Recommended Link | | | | On September 16, experts are saying there is a 95% chance the Fed will trigger an adverse event for megacap tech stocks. Nvidia, Microsoft, and Amazon could see their growth stunted for years to come. At the same time, an entirely new class of stocks is positioned to overtake “The Mag 7s’” spots at the top of the food chain. Get 7 stock trade ideas to help you prepare NOW for September upheaval. |  | | What does this teach us about the market? Brawn alone is not enough. Intellect is an equally important factor – and in the theater of investing, often much more so. After all, TradeSmith’s path to helping you earn better returns is a strategic one… that harnesses the power of data. Lately, we’ve been talking a lot about large-scale money flows and their relationship to stock prices. We have good reason to do so. Estimates suggest that upward of 70% of all daily volume on the U.S. stock exchange is institutional. Big money can move stocks like little else. It’s the brawn of the financial world. But it’s not everything… Sometimes massive money flows send stocks higher in the short term… only for the music to suddenly stop and leave investors scrambling for a chair. It’s important to understand the kind of big money trades that work and those that don’t. The biggest difference is the quality of the stock that money is flowing into. Not to mention the quality of the flows themselves. One great example of a “big money” trade that doesn’t work – at least not in a sustainable way – are meme stocks. To be clear, meme stocks do not tend to see institutional money flows. And we’ll prove that with our software in just a moment. But they do occasionally receive massive retail capital flows… a different and weaker beast entirely. We recently discussed the revival of meme stock mania, which for some names is still in full swing, and for others the joke is already over. While Kohl’s (KSS), after initially giving up its meme-driven gains, has rebounded higher… Krispy Kreme (DNUT), meanwhile, is back where it was before retail traders found it briefly hilarious. 
We can’t neglect to mention the king of meme stocks, GameStop (GME). The terminally struggling video game retailer is down close to 72% from its all-time high near $100, where it traded for just three sessions. It’s even down about 42% from this time in 2022 – when the sentiment towards this type of trade was far worse than it is today. The joke isn’t funny anymore. 
We can even look at something like Dogecoin (DOGE), which hasn’t even come close to returning to its peak, despite us being in the late stages of the next crypto cycle, and the total crypto market cap (TOTAL) is at new highs… 
Just as a large military force cannot win every battle… droves of retail investors – no matter what level of capital they briefly command – cannot create lasting success stories. The winning formula is to combine brains and brawn… If you’ve been following the Daily for the past week, you know institutional money flows are of great interest to us here at TradeSmith. With the right setup, these money flows can lead you to the next big stock. Finding those next big stocks are critical. Recall that University of Arizona professor Hendrik Bessembinder found just 4% of stocks were responsible for the stock market’s outperformance over Treasury bills from 1926 to 2016. In that same study, he found more than half of all publicly listed stocks underperformed Treasurys. Finding those outlier winners is so important, precisely because so many stocks either match or underperform the risk-free rate. In our research, we’ve found that the winning formula for finding these names is to combine unusually strong money flows with high-quality fundamentals – stocks with the highest revenue, earnings, and profit margin growth rates. That research is backed by a team of dozens of data scientists, analysts, and computer programmers whose only goal is to beat the market. And one of their biggest breakthroughs is our Quantum Score. It combines the key fundamental factors such as sales, earnings, and profit margin growth… with the telltale signs of institutional order flow… and the price momentum that comes as a result. We’ve turned all those individual factors into a simple-to-understand score. The higher the score, the better the stock. And do you know what kind of scores those meme stocks get? Take a wild guess… Here’s Kohl’s (KSS), with a middling 50.4 score… Note that the technicals, even with the recent rally, are rather poor: 
DNUT fares much worse… 
And GME, well… 
You can play around with these stocks if you want to. But me? I’m looking for stocks with the highest Quantum Scores I can find. Stocks like Shopify (SHOP)… 
Acadia Pharmaceuticals (ACAD)… 
And Arista Networks (ANET)… 
These are the types of stocks you should target for your portfolio. The ones with strong fundamental growth rates and technical strength. These are strong examples, to be sure. But there’s plenty more data supporting this idea that quality stocks ultimately gain and retain those juicy institutional flows. To that end, watch this new presentation by our CEO Keith Kaplan on this very subject. Not only will he show you examples of how this has played out with past picks… Keith will also clue you in on exactly how the system detects momentum building beneath the surface. And when it does, it tends to create the type of a breakout that’s been responsible for some of the greatest stock plays in the past 60 years. Our Earnings Season Pass subscribers are cleaning up once again… Each week in Earnings Season Pass, analysts Andy and Landon Swan set their readers up to double their money in a matter of days. How? With an armada of data… ranging from social media posts, search activity, and web visits… down to the nitty-gritty balance sheet numbers that keep a business running… and the technical momentum that drives prices higher or lower. And the scale of the data they trawl through is mind-boggling… In one day, LikeFolio’s Data Engine processed 1,230,030 items -- from Reddit alone. That’s nearly 30 million data points a month… from just one of its data sources. Using the data engine, Andy and Landon even get an “X-ray” view into website traffic trends for hundreds of publicly traded companies. By tracking these Main Street trends, they can predict stock moves before most folks on Wall Street even see them coming. The data engine is step one. The trade is step two. Not just that, but they use a specific options trade strategy to always give their readers an edge. Andy and Landon put it best in their trade recommendation sent out last Sunday: LikeFolio favorite On Holding (ONON) looks primed for an earnings beat – making a bullish Coin Flip on the running shoemaker the clear favorite for this week’s Hand-Picked Trade. Earnings Season Pass members will remember last season’s bullish earnings performance: The Swiss company impressed with record quarterly sales and margins, sending the stock ~16% higher for a double-your-money opportunity. That momentum has cooled significantly in the months since – presenting an excellent opportunity for ONON to beat lowered expectations. Because as Wall Street interest wanes, LikeFolio consumer data remains resilient. New flagship stores and effective brand storytelling through high-profile partnerships with influencers like Zendaya are winning over younger shoppers, according to our digital demand metrics. Product launches, such as the Cloudsurfer 2 and Cloud 6 shoes, are garnering interest as the back-to-school spending season kicks off: 
Source: Google Trends With shares down ~20% since February, margins at record highs and expanding, and underlying consumer momentum, we’re betting ONON can deliver another surprise to the upside when it reports earnings this Tuesday before the market open. That “Bullish Coin Flip,” as they put it, is exactly how it sounds. It’s a trade designed with the knowledge that earnings reports are volatile and unpredictable… but with a bullish edge. The trade pays out more if the stock goes up than it loses if it doesn’t. And that’s precisely how ONON played out. By Tuesday, the Coin Flip Bullish spread delivered a gain of 100%. This isn’t the first great trade from Andy and Landon, even just this season. Starbucks (SBUX), up 97% in two days… Netflix (NFLX), up 105% in four days… and Adobe (ADBE), up 150% in four days… from just the past two months all come to mind. And all these trades used the same type of strategy. Subscribers can expect the next round of Earnings Season Pass signals in their inbox this Sunday. To building wealth beyond measure, 
Michael Salvatore
Editor, TradeSmith Daily P.S. In the meantime, Keith includes a new, free pick with an ideal Quantum Score in his webinar – watch the replay for full details before big money sends this stock through the roof. (Michael Salvatore held a position in DOGE at time of writing.) | 
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