sport football: 99.9% Have No Idea if the Market Is Healthy

July 31, 2024

99.9% Have No Idea if the Market Is Healthy

BY Keith Kaplan
CEO, TradeSmith

Hundreds of millions of people around the world use Google every single day.

Of those hundreds of millions of people, a lot of them are investors who are involved enough to check stock prices daily. And most of them think of the S&P 500 as the primary stock market benchmark.

Therefore, we can assume that at least once per day (probably more), a large number of investors find themselves Googling "S&P 500," then staring down an image that looks something like this:

I ask you: For this being one of the most frequently viewed stock charts in the world... is this the best we can do?

It tells you the S&P 500 is down 0.74 points, or 0.01%. It tells you the previous close. It tells you the high and low of the past year... and day. And you can pop around to different time frames.

That's about it.

Satisfied?

I'm not.

I think you should have a chart that quickly shows:

The real reason why the market is up or down...
Which stocks in the market are contributing to the overall move...
The underlying health of those stocks...
And a reasonable idea of whether an extreme price move is a garden variety pullback... or the start of something much worse.

TradeSmith is a software and data analytics company. We provide solutions to big financial problems just like this one.

And if you ask me, Google's extremely basic view of the most important group of financial assets in the world is plain not good enough. No investor can make a rational decision about their financial life with this speck of information.

Don't get me wrong. I understand most investors don't want or need to get in the weeds about this stuff. I'm not proposing a new, overcomplicated standard to stock charts.

But as a young investor 25 years ago... viewing charts like the one I showed you from Google Finance just drove me crazy.

I knew investors deserved better. I knew I could build a better chart.

So when I joined TradeSmith in 2017, doing just that was my top priority.

I haven't Googled "S&P 500" in years. I don't look at Yahoo Finance. I know better!

I go straight to our members-only platform, TradeSmith Finance, and click the "Markets" tab instead.

And today, I'd like to show you what happens when I get there. I'll show you how I analyze TradeSmith's chart for one of the most-owned stock benchmarks in the world.

You'll see how, with the same amount of effort, I can glean a far more useful understanding about where the market is headed... where it's been... and the precise level I know I need to bail out or buy in.

Then, I'll share some details about the next evolution of our software... available to our subscribers very soon.

The Only Market Health Indicator I Follow

When you click the "Markets" tab at the top of TradeSmith Finance, you're greeted with 12 boxes that immediately tell you three key things about every financial market that matters. Large caps, mid caps, small caps. Stocks listed in the U.K., China, Australia, Japan, and more.

Today, though, we'll stick with the most important market for most of our readers – the S&P 500.

When you scroll down from that broad view, you get a chart. Our chart looks a bit different from Google's. In addition to the price change and previous close, it shows you:

The percentage of S&P 500 stocks trading in the Green Zone – our proprietary measure of positive momentum – as well as the Yellow and Red zones.
Which zone the S&P is in overall, how long it's been there, and what level the index would need to trade at to move to a different zone.
The overall risk level, based on how close the S&P has gotten to our TradeSmith trailing stop.
The amount of Fear & Greed in the market at any given time.
Our Smart Moving Average, the gray dotted line, which conservative investors can use to sell stocks on a pullback.
The past and current "bullseye" and "bearseye" signals – extremely powerful market cycle indicators I'll explain in a moment.

It's all in this chart.

Immediately, you can see the specific levels that you need to watch and understand as a long-term investor who wants to make the most of every upcycle and downcycle. That's much more useful than just seeing the price rise and fall over time.

For example, take a look back at May 2022 on the chart above. The red crosshairs icon represents our "bearseye" signal.

In the past, this signal flashed before major pullbacks and prolonged bear markets – like the dot-com bust (December 2000) and the Great Financial Crisis (August 2007), as well as the 2022 bear market, as you can see above.

Following the bearseye in May '22 would have meant dodging the deeper lows investors sustained later that year... and locking in great prices most would wish they took advantage of.

Our proprietary indicators, just like this one, monitor the gyrations of the market and its internal trends. And these indicators focus on the individual stocks that make up each index.

They measure the health and trend of these stocks, then determine if we are trending in a healthy or unhealthy way.

It should make sense that to get a bearseye signal, you need both a weak market and weakness in the stocks that make up the market.

And our signals have a history of not only being right, but nailing bearish and bullish calls before any 20% index drop (or rise) from the bottom – which is generally when market-watchers are willing to declare that we're in a bear (or bull) market.

That's because TradeSmith charts reflect the big thing that I found was missing in traditional financial charts:

People forget that indexes are groups of stocks. All the components matter. If the index is down but the vast majority of stocks in it are not, we could very well see the index drop into the Red Zone while most of its stocks remain in the Green Zone.

And it either means that the largest companies weighted in the index are facing headwinds... or all the stocks are facing a small amount of weakness. Neither is necessarily a reason to sell, but you have to be able to pick up on these nuances before you can see that.

On the flipside, if an index isn't shooting higher out of a bear market but the companies inside it are rapidly improving, that's a big reason to buy.

That's how our "bullseye" signal works – which you'll see triggered in January 2023... and stocks have ripped about 36% since.

We get these signals when the percentage of Red Zone stocks drops below 60%, or if the underlying health of the index itself improves to Green or better.

But here's the great thing about our charts...

These bullseye and bearseye signals, powerful as they are, don't come as huge surprises. You can see, there on the left, how many stocks in an index are trading in the various zones. When index health is rapidly deteriorating, you can see it happening in real time. When it's improving, you see that too.

This alone gives you such a massive edge on the scores of investors who fail to sell before a bear market deepens... or worse, sells at the bottom.

Now, all this said, where do we stand today? Let's bring that chart up again...

Right now, there's a strongly positive trend in the markets. The number of Red and Yellow Zone stocks in the S&P 500 is shrinking... and the number of Green Zone stocks is growing. That's a sign that we're moving in the right direction, even if we see the current pullback last a bit longer.

We just hit a new record high. While we're hitting a seasonal period of instability, that's ok, our trend in our algorithms looks healthy for the better part of the year.

And if things go awry ... our alerts go out.

You see, depending on which indicators you've subscribed to, TradeSmith will automatically alert you when one of them triggers for your portfolio (or watchlist) stocks.

For example, Trade360 subscribers get the Health Indicator signals I've shown you today, including Entry Signals when a stock crosses into the Green Zone – or Early Entry Signals even before that.

Plus they can sign up for others, too. If they also want market health alerts, they can select TradeSmith Baskets in their alert settings as well:

The important thing is to set up the alerts that are most important to your investing strategy – and watch out for them!

Now, tell me that isn't a night and day difference.

With our software, you don't even need to check the chart every day if you don't want to. You can simply follow our proven alerts and make the moves you need to.

And it's all about to get even better.

The Next TradeSmith Chart Evolution

Within the next couple months, we're going to launch the next evolution of our charting software.

It's designed to help you see all this info in an even more streamlined way.

Our goal is always for you to understand exactly what's happening in seconds – without any additional work. So, based on feedback I've gotten from my past presentations about this TradeSmith tool, we are currently working on a gauge feature that will highlight exactly what is happening with the markets and how they're trending.

Within seconds, you'll have an up-to-date battleplan on how to handle your stock portfolio.

That's all I can say for now. Other than the fact that our valued Trade360 members will receive this update for free in the next couple months.

Yes, these charts are reserved for our paying members. Here's why...

There's an endless list of websites where you can find charts. Some of them will give you free charts that are more advanced than Google Finance. I won't pretend they don't exist.

But I've been in the software business my entire career – and I can tell you: It's absolutely true when they say, "if the product is free, you're the product."

We don't burden our users with sketchy ads in the margins of our website, cumbersome sponsorship deals, or products with onerous limitations.

We put nothing between our users and an unbeatable investing experience. All that matters to us is that they invest well and avoid the worst the market has to offer.

We're confident we can do this. So confident... I recently held my good friend Porter Stansberry's feet to the fire.

Porter's a good sport. You have to be to write financial newsletters. But even he had to set his pride aside when I showed him the chart below.

You'll see that Porter's flagship letter, Stansberry Investment Advisory, has had an incredible run over the last 24 years (black line below). You can see how it's consistently outperformed the S&P 500 (gray line) since 2000 by more than two times.

Well, I showed Porter that if he'd used our Trade360 software suite to manage the open and close recommendations for the stocks he covered (green line below), he could've done just a little bit better. And by a little bit, I mean more than double:

An investor who used the alerts I told you about today to trade Porter's recommendations would've outpaced the S&P 500 by more than 6x. Starting in 2010, Trade360 broke from Porter's already excellent performance and never looked back.

But what you have to understand is that Trade360 didn't change a single one of Porter's recommendations. It didn't use any leverage or options. It didn't use larger position sizes. It simply traded them at a different time... following the algorithms that power all of TradeSmith's software.

I recently sat down with Porter to discuss this research project of mine, and also how it outperformed the likes of Warren Buffett, David Einhorn, and Bill Ackman all without changing anything but when to trade.

As part of this conversation, I'm giving new readers the opportunity to join up with Trade360 and try it out for themselves.

After what I showed Porter, he said he wants every subscriber of every MarketWise newsletter to use it – that's how powerful it is.

So if you think you can benefit from what I showed you today – not to mention the many other features Trade360 has, which I'll show you – go here and get the full story.

All the best,