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Sell Silver, Buy These Three AI Trades
Sell Silver, Buy These Three AI Trades
BY MICHAEL SALVATORE, EDITOR, TRADESMITH DAILY
In This Digest:
- Trump’s new Fed pick is a puzzler
- The precious metals bull market is down, but not completely out
- The top Predictive Alpha trades all point to one huge theme
Meet your new Fed chair…
On Friday, President Trump confirmed his nominee for the next chair of the Federal Reserve – former Fed governor Kevin Warsh.
To many, it seems an unusual choice…
Warsh served as a Fed governor between 2006 and 2011. During that time, he was known to be generally “hawkish” – meaning he typically leaned toward higher rates.
That’s at odds with Trump’s campaign for lower rates. He’s called for the Fed to slash rates from their current range of 3.5% to 3.75% to as low as 1%.
But as Warsh jockeyed for the top job, he changed his tune. He now advocates for more aggressive rate cuts, which is presumably why Trump tapped him for the top job.
We’ll leave the guesswork over where interest rates are headed to the folks writing about it in the mainstream press and on social media. You’ll find plenty of “hot takes” there… if you really find that useful.
Instead, we’ll do what we always do and look at the risks and opportunities this news presents through the lens of data.
In particular, we’ll look at what it means for one of the biggest trends in the market of late – the white-hot rally in gold and silver.
Say what you want about Warsh and his opinions on interest rates. What matters is the fact that news of his appointment sent the precious metals rally into reverse.
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Gold and silver tanked on Friday…
Gold fell as much as 13%.
It was the sharpest single-day drop for the metal since 2013. You’d have to go back to 1983 for the last time gold fell more in a single day.
And silver plunged 35% – its deepest single-day drop in 43 years.
If you own these metals and are wondering what to do now, you have two choices.
- You can join the crowd in guessing where precious metals are headed by speculating on the Fed and interest rates…
- Or you can sidestep the guesswork and let the market’s own history answer the question for you, using TradeSmith’s Long-Term Health indicator.
Long-Term Health is TradeSmith’s founding indicator and powers our flagship risk management software, TradeStops.
It’s built around the simple idea that every asset has a normal range of movement.
Whether it’s gold, silver, stocks, ETFs, you name it. Over time, each develops a well-defined rhythm of ups and downs that defines its risk level.
TradeSmith measures this with a proprietary metric called the Volatility Quotient (VQ). It tells you how much an asset typically moves over long stretches of time.
A higher VQ means wider, more violent swings. A lower VQ means calmer, steadier trading.
Once we know an asset’s VQ, we can see whether today’s price action is normal or extreme by historical standards.
If the asset is moving higher and within its usual volatility range, it’s in a Green Zone – the trend is intact and any downside moves, however dramatic they feel, are still historically ordinary.
If it moves outside of that normal volatility range, it enters a Red Zone, meaning the trend has broken down.
That’s the key distinction VQ gives you. It’s not about whether prices are moving, but whether they’re moving out of character.
With that in mind, let’s look at the chart of the popular silver-backed exchange-traded fund, the iShares Silver ETF (SLV) with its Long-Term Health indicator along the bottom:
As you can see, SLV entered a Green Zone in May 2023, meaning it was a “buy.”
That red stop flag on the bottom right of the chart shows that SLV entered a Red Zone after Friday’sdrop. That means it’s a sell.
SLV’s VQ is just above 25%. So, since it’s down more than 25% from its recent high, it crossed into Red.
If you followed this simple traffic light system instead of trying to guess about complicated “macro” events like rate cuts, you’d have made 243% on SLV in less than three years.
Now, let’s look at gold by way of the SPDR Gold ETF (GLD).
Gold bulls will be pleased to hear that GLD has not entered a Red Zone. It closed on Friday in the Yellow Zone – a caution zone that bridges the gap between Green and Red. That means it’s still a “hold.”
This isn’t the first time gold has entered a Yellow Zone during this bull run. Since GLD’s first Green Zone Entry signal on Dec. 29, 2023, it’s entered a Yellow Zone twice – in November 2024 and last October. On both occasions, it then went back into a Green Zone.
At this writing, GLD shares trade for about $445. It will cross into the Red Zone if it closes below $433.24 today. If that happens, it’s time to sell. But for now, gold is still a hold.
Moving on, let’s look at the Predictive Alpha leaderboard…
If TradeSmith’s Health indicator put it on the map, Predictive Alpha is guiding it into a new era.
Our team built a forecasting engine inspired by the same AI technology behind ChatGPT and other large language models, but designed for analyzing stock prices.
Instead of studying millions of words, our model studies millions of data points from decades of market history. It looks for repeating patterns in price, volatility, and momentum – patterns too subtle and too numerous for any human to spot.
Using that framework, it generates probability-based forecasts for stock price movements up to 21 trading days out.
And it learns as it goes. Each day’s market action becomes a set of fresh inputs, allowing the system to continuously recalibrate and improve its forecasts over time.
Here are the top three Predictive Alpha forecasts right now.
Topping the list is Bloom Energy (BE).
BE sits at the intersection of two of the major market trends we’ve been watching closely in these pages: the surge in AI-driven electricity demand and the growing strain on the power grid.
BE’s on-site fuel cell systems allow data centers and industrial customers to generate reliable power without waiting years for grid upgrades.
And as you can see, this stock has a projected 13% expected upside move between now and March 3.
That’s supported by a Directional Accuracy rate of 90.63% – meaning past Predictive Alpha forecasts were accurate on the direction more than 9 of 10 times.
And its Target Accuracy – how often the price hit the forecasted price within the window – was right more than 96% of the time.
Predictive Alpha also forecasts a 10.8% move for industrial robotics company Teradyne (TER) by March 3. This forecast has a 90% Directional Accuracy rating and a 93% Target Accuracy rating.
TER is another interesting play on the AI boom.
It makes the equipment used to test semiconductors before they ship. That’s more important now than ever, as AI workloads require more complex chips.
Teradyne also owns Universal Robots, a leader in collaborative robots (or “cobots”) designed to work safely alongside humans on factory floors. These systems are increasingly used for repetitive testing, handling, and assembly tasks – areas where manufacturers are struggling to find reliable labor.
Finally, we’re seeing a 9.3% forecasted gain by March 2 for oil-and-gas services company Tetra Technologies (TTI).
Again, there are ties to the AI and robotics theme here.
Tetra Technologies is best known for providing specialized fluids and services used in oil-and-gas drilling, particularly in offshore wells.
And alongside its core oil-and-gas services business, the company is developing technology to extract lithium from water produced as a byproduct of drilling. If successful, this could turn a waste stream into a source of battery-grade materials used across electric vehicles, energy storage, and industrial robot fleets.
Predictive Alpha has been right on the direction for TTI forecasts 96% of the time in the past, the highest of the three trades. And it’s been right on target 92% of the time.
Each of these stocks fell on Friday. But Predictive Alpha is forecasting a rebound in February – especially in the energy, semiconductor, and robotics sectors.
This reinforces an important theme we’ve been covering here in TradeSmith Daily: The AI trade is changing shape yet again.
Investors are flocking to stocks that may not seem like AI-forward ideas. But they stealthily operate in the background – to embed AI into the global economy.
It also shows us that despite short-term volatility, our algorithm is still bullish on these market-defining trends. It may be time to exit the silver trade, but the momentum in stocks like these is alive and well.
To building wealth beyond measure,
Michael Salvatore
Editor, TradeSmith Daily
