How to Escape the Falling Income Trap

By Michael Salvatore, Editor, TradeSmith Daily

In This Digest:

You can’t afford to miss tomorrow’s T-Day Summit
It redefines how you can pull income from the market
Savings rates are headed back to zero
The right and wrong kind of dividend stock to buy
This exceptionally strong seasonal trade starts now

This has been the “year of the breakthrough” here at TradeSmith…

In January, we debuted our Seasonal Edge strategy. By crunching thousands of data points every day, it can spot hidden seasonality patterns in stocks.

In February, we released a breakthrough in macro trend analysis with our Mega Melt-Up thesis. With quantitative analysis, we proved the primary theme powering markets higher. (Since then, the S&P 500 is up 10.8%.)

And in April, we took it a step further. Using the same underlying technology as ChatGPT, we created AI-based stock projections with our Predictive Alpha Prime service.

These breakthroughs didn’t come from nowhere. Our mission at TradeSmith is to put hedge fund-level software tools and analytics in the hands of regular investors.

We’ve spent years building out our development and data teams so we can rapidly design, test, and develop trading strategies to help you gain an edge in the markets.

And the year of the breakthrough continues here in September with our release tomorrow of our new T-Line indicator.

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The T-Line is an evolution of one of our favorite trading strategies…

With it, you can generate income from short-term trades while limiting your downside risk.

Using the T-Line, you can instantly spot small mispricings in certain trade opportunities.

This gives you an advantage that millions of other traders don’t even know they could have.

You can use these errors to find overvalued opportunities… then use our favorite trading technique to generate cash on them.

Or you can use them to find undervalued opportunities… then profit as they revert to the mean or even exceed it.

Our launch event for the T-Line is happening tomorrow at 1 p.m. ET. And when you join, you’ll learn a ton about how to turn the market into a constant source of cash flow.

Don’t take my word for it…

As I mentioned, the T-Line is an evolution of an existing TradeSmith strategy.

We first launched an automated cash-flow generation service in 2021. Since then, we’ve gotten in a ton of positive feedback from folks who’ve been using it to supplement their income.

For instance, one user, Ian W., told us he was able to make an extra $600 a day with it.

Other users report gains like these:

This strategy has been netting me $5,000 to $10,000 monthly!

– Marion B.

I manage to average about $250,000+ a year. I consider that my annual salary.

– Yvon L.

I set a low monthly target of $5,000 gain… For the first seven weeks in 2025, I was fortunate to harvest $15,000.

– Mark C.

These are some of the best results users have reported with our system. But since we launched our Constant Cash Flow model portfolio with this strategy in 2023, it’s racked up a 98.8% win rate on nearly 900 profitable trades.

And that’s before using the T-Line to enhance our results.

It gives us the power to shorten these trades from one week down to just one day in many cases.

That’s what tomorrow’s T-Day Summit is all about. Our CEO, Keith Kaplan, will walk you through how the T-Line works and how you can use it to generate your own extra income streams. He will also:

Show you real-world examples of trades you could make right away
Reveal how to cut your risk while boosting your potential returns
And share more stories from everyday investors already using this approach

Keith’s summit kicks off tomorrow at 1 p.m. ET. Attendance is free. And there’s still time to secure your spot by going here now.

On that note, generating extra income just got a lot more important…

As we covered last week, interest rates are falling as inflation rises.

If this trend keeps up, the “real” risk-free yield (short-term interest rates minus the rate of inflation) will fall below zero once again.

Since the huge spike reflecting the Fed’s rapid rate cuts in 2022, the trend is down… and headed back toward zero.

In a world of negative real yields, it won’t be enough to park your savings in CDs or money-market funds. That will be like throwing dollar bills into the fireplace.

You’ll have to get active in your income strategy.

But there’s a smart way… and a not-so-smart way… to do that.

The smart way is using our automated cash generation strategy. You know, the one with a win rate of 98.8% spanning nearly 900 winning trades.

Our subscribers have used this method to pull thousands of dollars a week from the market.

And our newest software release makes that easier than ever.

The not-so-smart way is “reaching for yield”…

Reaching for yield is a good way to get burned.

It’s when you take unnecessary risk to get what on its face looks like a safe, consistent form of income.

There are far more dumb ways to go about this than smart ways.

The most popular of these is by looking for the highest dividend paying yields in the market.

You can find stocks out there with fat yields. But that doesn’t mean they’re worth owning.

Take Pfizer (PFE), for example. It has a dividend yield of 7.3%. But it’s also down more than 11% this year… and down 31% over the last five years. Factoring in capital losses, the dividend isn’t helping you all that much:

Remember also that a dividend yield moves based on the stock price. So PFE’s yield was even lower two years ago – about 5.7%.

Pfizer has been consistently raising its dividend since 2009, which is a good sign. But it doesn’t matter much when capital losses erase the boon of a dividend.

Seeing this, some investors resolve to accept smaller dividends in better stocks – a good road to travel.

And TradeSmith’s software helps you find the best of those.

One of my favorite simple screens pulls up stocks with high Quantum Scores and high dividend yields.

The Quantum Score combines growth fundamentals, healthy price action, and unusually strong buying volumes to rank stocks. It was designed by our colleague Jason Bodner, who learned to spot Big Money flows during his time as head of equity derivatives at Cantor Fitzgerald.

The screen below seeks out stocks with a Quantum Score above 85 – already a slim minority of the market – and a dividend yield outpacing the rate of Core CPI inflation.

That filters thousands of stocks down to just 18. Here are the top 5, sorted by a new Dividend Growth Streak filter we’ve added to the screener:

This filter helps you isolate how many years a company has raised its dividend. The higher the streak, the most consistent a company’s ability to pay out income.

At the top of the list is energy firm Williams Companies (WMB). That sports a strong Quantum Score of 89.7, a dividend yield of 3.1%, and eight years of continual raises. This stock is also up an impressive 46% over the last year – meaning the dividend is a cherry on top of a great, growing stock.

WMB is a great stock. But even it has nothing on the cash-producing trading strategy we’ll be discussing more in depth tomorrow.

Once again, if you want to learn all about how our newest software makes it easier than ever to draw strong cash streams from the market, sign up for this free event right here.

Shifting gears, let’s check in on some seasonality ideas…

The month isn’t over yet, but the stock market seems to have bucked the seasonal trend.

September is typically the worst month of the year for stocks. For 56% of the last 75 years, the S&P 500 has been lower in September. And the average return has been a loss of 1%.

So far this September, however, the S&P 500 is up 2.2%.

It may be a case of the melt-up overriding the seasonal pattern. As we’ve been covering, we’re in a period of unusually strong stock market performance.

There are some interesting periods of strong Septembers, though:

Stocks were up every September from 1995-1998 by at least 2% and as high as 6.2% – another period of strong melt-up conditions amid the dot-com bubble
The post-bear market years of 2009 and 2010 both saw positive Septembers, up 3.5% and 8.7%.
In 2024, stocks ran 2% in September.

The market of today holds a combination of these first two examples. It’s a strongly tech-oriented bull market like the ‘90s, and it’s also a young bull market that began in 2023.

Seasonality is just one data point among countless to look at. But the shared qualities of this bull market with previous ones should keep our biases to the upside.

Piling on, the clearest seasonal trend all year long – the holidays – is nearly upon us.

Stocks have been up 81.3% of the past 75 years from Oct. 27 through the end of the year, for an average return of 4.3%:

That’s about a month out, though. So let’s look at a more immediately actionable seasonal trade opportunity in Oracle (ORCL).

Over the last 15 years, ORCL has been higher all but two times – in 2018 and 2021 – from today through Dec. 3.

It’s also an exceptionally strong seasonal trend, with an average return of 6.3%:

So if you’re looking for a solid trade to take advantage of for the bulk of the bullish seasonal window, ORCL is one to watch.

In the meantime, our newest software is expressly designed to help you find the best short-term trade on ORCL – or pretty much any other stock you have in mind. Make sure you join Keith tomorrow at 1 p.m. for the official launch.

How to Escape the Falling Income Trap