RJ Hamster
The Iran Blockade Points to This Small-Cap Oil Stock
The Iran Blockade Points to This Small-Cap Oil Stock
BY MICHAEL SALVATORE, EDITOR, TRADESMITH DAILY
In This Digest:
- Oil and gas stocks dropped on ceasefire news – but look closely at this buy signal
- Our new earnings season tool just went live, and this stock is a must-watch
- This Wednesday, get first access to TradeSmith’s biggest release in years
The “ceasefire rally” is already unraveling…
Last week’s news of a two-week ceasefire between the U.S. and Iran sent markets soaring.
The Dow posted its best week since November, up 3%. The S&P 500 and tech-focused Nasdaq 100 jumped 3.5% and 4%, respectively.
Oil fell 16% in a single day – among the biggest such price drops in recent history.
But over the weekend, negotiations for an end to the war ran into trouble.
Vice President Vance said the talks broke down over Iran’s refusal to abandon its nuclear program. Iran’s chief negotiator, Mohammad Bagher Qalibaf, blamed the U.S. for failing to “gain the trust of the Iranian delegation.”
Then on Sunday, President Trump announced that the U.S. Navy would blockade the Strait of Hormuz – the narrow waterway off Iran’s southern coast that carries roughly a fifth of the world’s oil supply.
As of this writing, oil is back above $100 a barrel. S&P 500 and Dow futures fell roughly 0.5% to 0.6% overnight – a sign that investors are inclined to doubt any progress toward peace.
Luckily, with TradeSmith’s software and data analytics we don’t need to be Middle East experts to navigate this difficult situation. We know what to buy and what to avoid, without looking at a single news headline.
Let’s start with the sector that just got a new tailwind…
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Buy the energy stock dip…
The ceasefire rally took a toll on oil and gas stocks. The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell about 5% last week as traders priced in the possibility of lower oil prices and a resolution to the conflict.
But the pullback hasn’t broken the underlying bullish momentum we see in our Short-Term Health Indicator.
Short-Term Health is TradeSmith’s most sensitive trend indicator. It looks at how a stock or index has been trading over its recent history, then flags abnormal moves that signal a shift in momentum.
It’s been bullish on XOP going back to Jan. 26, a full month before the war began. Since then, the ETF is up more than 26%.
Last week’s decline did not take it out of the Green Zone. Plus, several stocks inside XOP are still flashing buy signals despite last week’s sell-off – some of them new.
Here are the five most recent Short-Term Health buy signals in the ETF:
I’ve included a few other columns here – market cap, the Volatility Quotient (VQ), price-to-earnings ratio, and recent price performance – to make an important point.
A Short-Term Health Green Zone signal shouldn’t be your sole reason to buy a stock. It’s a powerful momentum indicator, but it doesn’t necessarily mean a stock ticks every box.
First off, note that all of these stocks are in the small- to mid-cap range. That by itself is an indication of higher-than-typical volatility.
We can confirm it with VQ. That’s our proprietary measure of a stock’s historical volatility. The higher the number, the more volatile the stock.
A VQ of 66% on Gevo (GEVO), for example, tells you this stock can swing that much in either direction during a normal trend. That’s a wild ride.
By contrast, SM Energy (SM) has a VQ of 36.6% – still volatile by most standards, but far more manageable.
Then there’s the P/E ratio – a measure of how much you’re paying for each dollar of a company’s earnings. CVR Energy (CVI) has a P/E of 114, which means you’re paying a steep premium for its current earnings. SM Energy’s P/E of 5 tells a very different story – this is a profitable company trading at a fraction of the valuation.
And the other companies have straight-up negative earnings – another knock against them.
The performance columns may be most telling. SM Energy is up 14.1% over the past month – the strongest on this list.
Yes, it pulled back 7.3% last week along with the rest of the group. But a one-week pullback into a stock that’s been trending higher for a month, is profitable, has lower volatility, and is still in the Green Zone? That looks like a buy-the-dip opportunity.
Compare that to Gevo, which is down 16.1% over the past month and 15.9% over the past week. It may be on some relatively recent short-term momentum, with the price up as high as 44% from the beginning of March. But it’s given all those gains back – not an encouraging sign.
When you’re looking to buy stocks, always use multiple confirming layers of evidence before you pull the trigger. No one indicator is infallible. But several working together can increase your odds of success.
With Trump’s blockade of the Strait now underway and oil back above $100, these energy buy signals should be near the top of your watchlist. But among them, SM Energy is clearly the strongest.
Earnings season kicks off this week – and our newest tool is ready…
While the Iran headlines dominate the news, another market-moving event is getting started: first-quarter earnings season.
Four times a year, every public company reports its numbers. And the stock moves around those reports can be enormous. Researchers from the Journal of Financial Economics have found that earnings-driven moves can run as much as 30 times larger than average daily moves.
That’s where Andy and Landon Swan come in.
Andy and Landon are the founders of LikeFolio. They built this platform more than 15 years ago to track what consumers are actually doing – in real time – across hundreds of millions of social media posts, web traffic, app downloads, and search queries every day.
Their data engine measures purchase intent, brand sentiment, and demand trends. And when those consumer signals diverge from where a stock is trading heading into earnings, it’s often a sign the market has it wrong.
That edge has produced wins of 308% on On Holding (ONON) in five days… 177% on Dick’s Sporting Goods (DKS) in four days… and 268% on Tesla (TSLA) in just two.
Part of Andy and Landon’s toolkit is their Earnings Season Pass system, which uses a combination of their social data and fundamental data to forecast earnings moves.
And they’ve just rebuilt their Earnings Season Pass system directly inside the TradeSmith Finance platform.
Here’s a look at what the new dashboard shows for CarMax (KMX), which reports tomorrow:
Let’s walk through the columns.
The Earnings Score of +66 is the Swans’ proprietary signal. It distills all incoming consumer data into a single number from -100 to +100. The higher or lower the number, the stronger the conviction.
Demand Growth and Happiness Growth uses the LikeFolio data engine to show whether consumers are buying more from the brand and whether they feel good about it. On both, KMX ranks Strong Bullish.
The Expected Move of ±10.9% tells you how much Wall Street expects this stock to move around the earnings report – up or down. That helps you know what kind of volatility to expect to size your trade accordingly.
And then there’s the Historical Performance score. KMX scores a 10 out of 10 – the highest possible mark. Click that, and you get this breakdown of the system’s accuracy:
That 10/10 score means the Swans’ system has been accurate on CarMax over its last two earnings reports, with a perfect win rate and an average gain on recommended trades of 72%.
The stock’s actual earnings moves over the past four quarters have been all over the map – down 6%, down 22.8%, up 4.1%, down 7.3%. That shows us the Swans’ system wasn’t uniformly bullish. It read each report correctly by tracking consumer behavior, not guessing direction.
The first weekly Earnings Scorecard dropped over the weekend. And CarMax is one of the first names on deck for the week ahead.
If you want to trade earnings with this kind of data-driven edge – and have each trade built for you automatically inside the TradeSmith platform – click here to learn more about joining Earnings Season Pass.
Stay tuned for next Wednesday…
We’ve been working on something behind the scenes for months.
Our Platinum members – the subscribers who get everything TradeSmith publishes – have been beta-testing a piece of trading software unlike anything we’ve ever built.
The idea behind it started years ago, when one of our top researchers began closely studying Jim Simons.
Simons is the founder of Renaissance Technologies, which is widely considered to be the world’s most successful hedge fund.
He founded his now-legendary fund after time away from his tenured position running the math department at nearby Stony Brook University. Back then, he was renting a cramped office near a pizza joint in a strip mall near the campus.
Simons wasn’t interested in earnings reports or analyst forecasts. He knew that if you did what everyone else was doing, you’d get the same returns as everyone else. He wanted to beat the market, not just track it.
So he was looking for unique signals – obscure, repeatable patterns buried in reams of market data that pointed to predictable price moves.
To find them, he didn’t hire Wall Street traders like most hedge funds did at the time. He hired mathematicians and physicists. And – notably – two IBM scientists who had spent their careers building speech recognition models.
Their job had been to predict the next word in a sentence based on statistical patterns in prior text. Simons told them to apply the same logic to stocks.
The result: Renaissance Technologies took in 66% average annual returns over four decades and became the most profitable hedge fund in history.
For decades, this approach stayed locked inside a handful of elite hedge funds… widening the wealth gap instead of closing it.
But our mission at TradeSmith is to put hedge-fund levels tools in the hands of regular investors. And our team – with the help of AI – have spent more than a year developing a software tool that uses the same kind of pattern recognition to spot these signals.
It evaluates 2.09 million potential trades every single day across 2,467 stocks. It runs each one through 847 individual calculations to find the same kind of statistical thumbprints Simons spent his career hunting down.
When the right combination of factors aligns, our system flags it as a high-probability trade setup.
And this Wednesday, April 15, we’re opening up a beta version of this revolutionary new trading tool to you and your fellow TradeSmith Dailyreaders so you can try it for yourself ahead of our launch event on April 22.
I can’t share more details yet. But if you want to be among the first to try the most sophisticated piece of trading software we’ve ever built, make sure you’re reading the Dailyon Wednesday.
I’ll be passing on the link that will allow you to test drive our software.
To building wealth beyond measure,
Michael Salvatore
Editor, TradeSmith Daily
