Keep Reading, Keep Winning By Michael Salvatore, Editor, TradeSmith Daily In This Digest: - We hope you remembered to buy in November…
- The easiest way to see the strength of this bull market…
- Investors are bullish on risk and consumers…
- The biggest gains in bitcoin are behind us…
- Start ’25 on the right foot with TradeStops…
“Eureka” moments like these are to be cherished… One year and one month ago, chatting with my esteemed colleague and TradeSmith Daily contributing editor Lucas Downey, we found ourselves utterly stupefied at an opportunity before us. It was the end of October. The S&P 500 was 10% off its highs. The mood was despondent. The bears were out in full force. Some were even starting to think the first half of 2023 was some kind of obscene bull trap to trick the beaten and bruised that survived 2022. However, feeling not the least bit crazy – we couldn’t have been more bullish. We knew the bull market was real… We knew AI wasn’t the passing fad some were beginning to suggest… And we knew that, historically speaking, the ideal time to buy was days away. Lucas and I live many states apart. But that didn’t stop the epic mind-meld eureka moment that was coining the lovely rhyme, “Always remember to buy in November,” and sending it your way. That’s a good piece of advice most years, but it was life-changing advice last year. Stocks hit bottom on October 27, 2023. Since then, the S&P 500 is up almost 47%. Take your retirement account, divide it in half, and add that number to the current total. That’s what happened. Sticking on the November theme, the S&P 500 rose almost 9% in November of last year. It was the biggest monthly gain of that year and the biggest monthly gain since… well, would you look at that… November of 2020. What was the biggest monthly gain this year (so far)? November yet again. The S&P 500 surged 5.5% this past month. We can only hope December is even better. But we’ll count our blessings. Those simple six words represent why TradeSmith Daily is the greatest investment newsletter in the world. (Yeah, I said it.) We use data to put the power in your hands. We run the numbers and do the work to put you in position to keep winning. If you followed our work, you’ve been winning in stocks. You’ve been winning in bitcoin. You’ve been winning in small caps, AI, seasonals, trading, and a whole lot more. Keep reading, keep winning… We have more reasons to be bullish… Do you know how I know we’re in a rock-solid bull market? And why I think next year could be yet another risk-on year? The most important defensive sector is getting absolutely crushed while the most important, let’s say “offensive,” sector is screaming higher… 
This is a chart of the Consumer Discretionary ETF priced against the S&P 500 ETF (XLY/SPY, red) compared to the same thing for the Consumer Staples ETF (XLP/SPY, blue). When a line on this kind of chart goes up, the first ticker in the pair is beating the second ticker, and vice versa. Discretionaries are “wants” stocks. The top holdings in this ETF are Amazon, Tesla, Booking.com, Starbucks, and Chipotle. You don’t go to these places when you’re strapped for cash. You go when you’re doing well and want to reward yourself with a Black Friday deal, a fancy new EV, a vacation, a pumpkin spice latte, or a burrito with extra guac. Investors are buying these stocks because they’re bullish on the consumer being able to do more of these kinds of things. These stocks also tend to be priced a bit more richly (price-to-earnings ratio, or P/E, of 25), as there’s an expectation that these companies are growing and future revenues will close the valuation gap. It’s a sign of optimism. So great, Discretionary stocks are moving higher right now. What’s not moving higher right now? The “needs” stocks, Staples. Stocks in this sector that aren’t named Walmart, Costco, or Altria aren’t doing great. The largest holding, Procter & Gamble (PG), is underperforming the market this year. So is Coca-Cola (KO) and Colgate-Palmolive (CL). Target (TGT) is down badly, worth just half as much as it was in 2021. As a whole, these stocks are priced more cheaply, at a 22.5 P/E. You might think cheaper is better, but really think about what P/E means. A higher multiple means more investors are buying. More investors are buying because they have higher expectations for growth. If your stocks are cheaper than the market, that might be good, and it might be bad. It depends on the growth picture. There are pockets of outperformance in Staples, to be clear. But the chart doesn’t lie. Staples vs. SPY is in a downtrend while Discretionary vs. SPY just broke higher. That means the market is happy to be long risk and is optimistic about the consumer. We should be too. (Disclosure: I own shares of TSLA, WMT, COST, and MO at time of writing.) Bitcoin dominance has officially broken down… As the bitcoin price breakout took center stage last month, we’ve been watching the chart of bitcoin dominance like a hawk. Bitcoin dominance is simply the share of cryptocurrency market cap ($3.3 trillion at writing) that belongs to the OG crypto, bitcoin: 
BTC.D is now at 56.56%, well down from the high of nearly 61% in mid-November and well below the trend line. This is an unmistakable change in trend. Bitcoin dominance will likely head lower here. Understand, this doesn’t spell the end of the crypto bull market. On the contrary, this development moves us into potentially its most profitable phase. Crypto is a relatively new asset class. It’s also extremely cyclical, with smack-you-in-the-face bull markets tending to follow in the 12 to 24 months after bitcoin’s regular “halving” event. (You may recall that the halving is when the amount of BTC rewarded to miners is reduced by half.) During the 2017 bull market, for example, the crypto market outside of bitcoin was very small and speculative. So small and speculative that bitcoin dominance didn’t really subside until the end of the bull market toward the end of the year, when bitcoin topped out at around $20,000. Here’s a chart of bitcoin dominance (blue), the ex-BTC market cap (red, left axis), and the price of Ethereum (purple, far right axis), the No. 2 coin by market cap at the time. 
As bitcoin dominance fell, altcoins soared and actually kept running while bitcoin itself started to fall. The months to follow saw a bear market. Let’s look at the most recent halving cycle, in 2021: 
If you ask me, this is more like what we should expect to see in 2025. Bitcoin dominance topped at the end of 2020. As it fell, the ex-BTC market and Ethereum both catapulted higher on what we now know were delirious – but powerful – trends in NFTs and DeFi. All crypto assets performed well in 2021, but these alts were strong outperformers. We’re already seeing altcoins outperform. Ripple (XRP) recently became the second major altcoin to make a new high. Solana (SOL), created during the FTX days, did the same not too long ago. Ethereum (ETH) is still well off its 2021 highs, but being the No. 2 crypto by market cap makes it a strong contender to breach them soon. If you’re into crypto, these are the areas you need to focus on as we move into 2025. Tune your ears to new technological narratives like NFTs and DeFi from before, or even a resurgence of these narratives, to know where to look. But my best advice, as someone who’s been in this space eight years now, is to strongly control your risk management. If you’re going to go outside the top 10 cryptocurrencies, you need to take profits quickly and trade in small position sizes. The potential for cryptos to double, triple, and even more in short order means you shouldn’t bet the doghouse, much less the farm. The volatility in crypto is brutal, and the space can turn on a dime. You don’t want to get caught holding any bag that isn’t bitcoin (which, in my humble opinion, has the best shot of staying relevant for the long run). Here’s how you can stay ahead in 2025… Naturally, we don’t want to be left holding the bag with any of our stocks, either – so mind your stop-losses. Any stocks that get left behind in this bull run could be a great source of funds for better opportunities. That goes for stocks that feel like they should be the right choice, like Dollar General (DG). The chain of discount retailers feels like the right play on higher consumer prices squeezing American households. Yet DG has gotten chopped up this year – even before the Discretionary vs. Staples reversal we discussed earlier. Our TradeSmith algorithms, however, know nothing about which stocks “feel right.” They only know if a stock’s indicators are lining up the way they should. That’s why TradeSmith gave an exit signal for DG back in May as the stock fell into the Red Zone: 
The chart above tells the tale – heeding our Volatility Quotient (VQ%) trailing stop would have meant exiting before a far worse decline. If you’re not already using TradeStops to know when to sell your stocks (as well as when it’s safe to buy), click here to learn more and claim our current discount on a subscription. To your health and wealth,  Michael Salvatore
Editor, TradeSmith Daily | 
