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Our Systems Are Blaring the “Risk-Off” Alarm for Tech
Our Systems Are Blaring the “Risk-Off” Alarm for Tech
BY MICHAEL SALVATORE, EDITOR, TRADESMITH DAILY
In This Digest:
- An ominous warning for tech stocks
- In 2022, this same signal preceded a bear market
- The small-cap defense names our CEO, Keith Kaplan, is watching right now
We’ll start today with a can’t-miss market development…
On Friday, the Nasdaq 100 entered a Short-Term Health Red Zone – what we call a Flash Sell alert.
The index tracks the 100 largest non-financial companies on the Nasdaq exchange – think Apple (AAPL), Microsoft (MSFT), Google (GOOGL), Amazon (AMZN), and Netflix (NFLX).
That’s the first sell signal since mid-March of 2025, two weeks before the Liberation Day crash.
After that signal, the Nasdaq 100 dropped 12% over four trading days.
Take a look at this chart of the Nasdaq 100 with its Short-Term Health status in Green, Yellow, and Red along the bottom:
Short-Term Health is TradeSmith’s volatility-based trend indicator.
It doesn’t read the news or care about geopolitics. It measures how a stock’s short-term momentum is behaving against its historical range – and tells you whether you’re in a healthy uptrend, a caution zone, or an unhealthy downtrend.
Green means buy. Yellow means caution. Red means sell.
This new sell signal – the first since last year’s big tariff announcement – is worth paying attention to.
And looking further back, we find an even uglier comparison.
The Nasdaq 100 also entered a Red Zone on Jan. 4, 2022. That was the start of a bear market that wiped out close to one-third of the index’s value.
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Most people are stressed right now, watching their retirement accounts swing wildly. Unfortunately, the volatility isn’t going away. But the stress could. Jeff Clark uses a method called “Crossfire” to turn stress into opportunity. Watch as he explains how to make volatility your ally, not your enemy.
Is history repeating?
At the start of 2022, Russia invaded Ukraine… there was an oil price shock and energy crisis… and the Fed got cornered into rate hikes as inflation risks ran hot.
Doesn’t it sound familiar?
- We have a war in Iran.
- We also have an oil price shock – crude jumped as much as 15% following the conflict in the major oil-producing region.
- And the Fed has signaled it would rather raise rates than cut them.
We’re not saying history will repeat perfectly.
But the data is saying the same thing it said at those two prior inflection points: Reduce risk now.
Now, let’s turn to TradeSmith’s tools for more on what to do about it.
These are the top sell signals to watch right now…
The Nasdaq 100 has entered a Red Zone. That’s a key risk-off signal. And it’s just one of dozens we’re seeing right now.
Four days ago, AI chipmakerAdvanced Micro Devices (AMD)flipped to a Short-Term Health Red signal.
The last time AMD entered a Red Zone was on Nov. 11, 2024. Following this short-term sell signal, the stock fell from $135 to as low as $86 in less than six months. That’s a 36% drop.
On Tuesday, America’s biggest bank,JPMorgan (JPM), also entered a Red Zone.
Since the bottom of the 2022 bear market, JPM’s share price has more than doubled. And over that time, it saw only three short-term sell signals. But a prolonged stretch in the Red Zone in 2022 saw the stock fall as much as 32% in less than a year.
If you subscribe to TradeSmith’s toolkit, take some time today to check the Short-Term Health status of the stocks you intend to hold for months, not years. If a position has turned Red, the data has made your decision for you.
To be clear, this is not a signal you want to follow for your long-term holdings. We designed it to be extra sensitive to short-term trend shifts. So if you have stocks tucked away in your 401(k) that you intend to hold onto for years – or even decades – stick with those holdings.
Are AI data centers a target in the Middle East conflict?
Iran’s drone barrage – part of its retaliation for U.S. and Israeli strikes – hit two Amazon data centers in the UAE in the crossfire, with a third facility in nearby Bahrain also damaged.
The strikes caused structural damage, knocked out power, and triggered fires that required suppression crews on the ground. Multiple AWS-dependent services went dark as a result – including AI models like Anthropic’s Claude.
The damage likely came from one of Iran’s “kamikaze” drones – a Shahed-136. Produced for as little as $20,000 apiece, it has the ability to knock out infrastructure worth hundreds of millions of dollars.
According to DataCenterMap, there are 326 data centers across the Middle East. All of them are now within drone range of a hostile actor.
The problem isn’t just that these data centers are vulnerable. It’s also that the U.S. military’s primary interceptor – the Patriot PAC-3 missile – costs about $4 million a shot.
So, defending against a single cheap drone costs 200 times more than launching it.
At scale, with swarms of dozens or hundreds of drones, a defender can be bankrupted by interception costs before the attacker runs out of weapons. And that’s the best-case scenario – it assumes none of the drones manage to slip through.
That’s why the Pentagon has been urgently investing in cheaper countermeasures – including directed energy and electronic jamming systems – to solve the math problem before its adversaries exploit it further.
The counter-drone market was worth $4.9 billion in 2025. By 2035, it’s projected to reach $36 billion. Just as drone warfare is accelerating, so is the market – and opportunity – for defensive countermeasures.
And right now, Jason Bodner’s Quantum Score is flagging which companies are capturing that spending.
Regular readers know Jason spent years on Wall Street filling multimillion-dollar institutional trades. And after he quit, he built the Quantum Score to track those flows – combining a company’s fundamental strength with its technical momentum into a single 0 to 100 rating. Anything above 75 is a buy.
Right now, three counter-drone and defense names are clearing that bar – and one is doing it decisively.
Here’s the top-rated stock in our system, Leonardo DRS (DRS):
DRS makes the mobile defense systems the U.S. Army uses to protect troops and equipment from drone attacks in the field. It’s the Pentagon’s go-to contractor for this problem – and at 93.1, it’s in the top 7% of all stocks we track. The big money has found this one.
Another player is Lockheed Martin (LMT):
LMT builds dedicated systems to detect and destroy drones among countless other military applications. It holds deep government contracts, a growing drone defense division, and direct exposure to the kind of conflict playing out in the Gulf right now. And at an 82.5 Quantum Score, it’s a clear buy.
Finally, let’s look at Kratos Defense (KTOS):
Kratos builds affordable unmanned aircraft the Pentagon uses to overwhelm enemy defenses with numbers rather than brute force. It’s the offensive side of the drone warfare equation – and as that doctrine spreads, Kratos is where the spending flows.
These are the kinds of stocks Jason and Jeff Brown call “Secret AI Stocks” – companies that don’t look like AI plays on the surface but are using this technology to serve an urgent global need.
The Secret AI Stocks Summit replay is still available. But it goes offline tomorrow. So make sure to check it out today before it’s too late.
Our CEO is watching these little-known defense companies…
While most investors have been piling into Lockheed Martin and Northrop Grumman, TradeSmith CEO Keith Kaplan has been looking further down the market cap spectrum for even bigger opportunities in defense.
As Keith pointed out recently on X, global defense spending is on pace to hit $2.6 trillion in 2026 – an 8.1% jump over last year. That capital flows in part to the small companies that make the components the defense industry can’t function without.
Three names Keith flagged on X:
- Innovative Aerosystems (ISSC) – a $497 million company modernizing military cockpits, retrofitting older aircraft with semi-autonomous digital flight decks. Revenue jumped 78% in 2025. The stock is up 86% in six months.
- Advanced Energy Industries (AEIS) – a $12 billion power supplier building rugged systems for military radar, sonar, and navigation electronics. Revenue up 22% last year. Stock up 173%.
- BK Technologies (BKTI) – a $323 million maker of tactical radios for soldiers and federal agents operating where cell towers don’t exist. On pace for $100 million in 2026 revenue. Stock up 186% over the past year.
These aren’t household names. They aren’t in the defense ETFs most investors own. But they’re the kind of companies that benefit from sustained, structural defense spending – the component layer that every prime contractor depends on.
Keith posts insights like this regularly on X at @KeithTradeSmith. It’s unfiltered market analysis, direct from the CEO of one of the most data-driven investing platforms in the business. Follow him there to see what he’s watching before it shows up anywhere else.
To building wealth beyond measure,
Michael Salvatore
Editor, TradeSmith Daily
Disclosures: Michael Salvatore holds shares of Alphabet (GOOGL) and Leonardo DRS (DRS) at the time of this writing.
