Editor’s Note: About 40 years ago, I created the quantitative system that many of you know today as Stock Grader. In fact, I’ve been called one of the first “quants” on Wall Street. Of course, the technology is better these days, so I’ve souped it up immensely since then. But the fact is it still does what I designed it to do way back when.
What I haven’t done, though, is design quant systems for other analysts. Stock Grader just works for my style of growth investing… and I’m in the business of helping folks like you use my style of investing to get rich.
But as you’ll read in the piece below, our corporate partners at TradeSmith have made it their business to help other analysts – and investors – utilize all kinds of powerful, thoroughly-tested strategies that suit their styles. In fact, as TradeSmith CEO Keith Kaplan will share, he and his team worked with master trader Jeff Clark to turn his proven, decades-old chart-reading discipline into a cutting-edge, easy-to-use scanner.
The end result? A system that can surface Jeff’s favorite “coiled spring” trade setups in seconds, not hours.
Jeff debuted his new system at yesterday’s Countdown to Chaos event. He also revealed 10 of his favorite trade setups pulled straight from this new tool. If you missed it, I strongly encourage you to watch the replay now.
Now today, TradeSmith CEO Keith Kaplan wants to take you behind the scenes a bit to show you how his team of engineers developed that software.
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For decades, master trader Jeff Clark has turned chaos, crashes, and panics into big profits for his readers.
But when those readers ask him how, in 2008, he was able to recommend 42 winning short-term trades out of 52, for an average return of 31%…
Or in 2022, when he recommended 12 trades that made 100%+…
Or just a month ago, during the Liberation Day crash and rebound when Jeff went 19 for 25, with 15 double-digit winners and 3 triple-digit gains…
It’s hard for Jeff to pin down exactly how he does it.
Because for Jeff, making money when volatility strikes is just second nature… And, frankly, he’s a bit old-school.
Jeff is used to scanning charts one by one, in a weekly ritual where he filters down thousands of potential opportunities to just a few… purely with his eyes and a handful of trusty technical indicators.
That’s the kind of discipline that’s built by becoming a trader in the pre-internet days. And to this day, Jeff’s a pretty traditional, low-tech guy.
He calls his approach “more art than science.”
But when Jeff joined TradeSmith, and we showed him that we could actually automate this ritual into an easy-to-use scan…
And that we could easily share this scan with his readers, providing 10 high-odds opportunities every single day…
We realized we could turn his moneymaking art into a science.
Now with his help and our technical firepower, we’ve developed a system that spots a unique, powerful trading signal that Jeff’s been following for years.
For anyone who has been following along in TradeSmith Daily, you probably know that we recently released a presentation all about this strategy, and how it’s now available to subscribers of Jeff’s work.
You also might know that during that presentation, we shared 10 different setups that recently hit our scanners. All of them could present 100%+ profit opportunities in the coming weeks, if you act on them ASAP.
I encourage you to check out the presentation now while these trade ideas are still actionable.
But while you’re here, I’d like to show you how we integrated Jeff’s monster signal into our software… and share a few of these “coiled spring” ideas for you to check out right now.
Three Stocks Showing Jeff’s Top Bullish Convergence Right Now
TradeSmith Finance users who subscribe to Jeff Clark got a new widget on their dashboard last week:
These are what we call Bullish Convergence setups. On these setups, three time-weighted moving averages are coiled together like a tightly compressed spring.
Imagine pushing a big spring together with your hands, with lots of pressure. Then, imagine the pressure becomes so great, the spring starts to bend upward…
And then goes flying into the sky.
It’s the same thing with these stocks. With the right pressure conditions, these stocks are primed to fly.
We went back to see what happens when these “coiled spring” setups occur. And what we found was remarkable.
When we backtested 10 years of data, Jeff’s signal produced winning trades 72% of the time.
As you may already know, Jeff does most of his trading in the options market. Seven winners for every three losers can make for an incredible options trading strategy. Because options leverage your returns, that level of consistency can make you some serious money.
Let’s look at some fresh examples to show what we’re looking for here.
Here’s a chart of T Rowe Price (TROW), which at this very moment has the highest coiled-spring energy of any stock we track:
You can see on the right-hand side of the chart the kind of setup I’m talking about. These three moving averages show that TROW is consolidating after a big move lower this year, and the stock itself making a higher low. This setup is a strong buy signal.
Here’s another example in Snap-On (SNA)…
Here again, we see the three time-weighted averages converging… and the stock forming a higher low.
And here’s one more example in GoDaddy (GDDY):
Again, we see that same signal and that same higher low on the chart.
With a win rate of 72% on this strategy, odds are very good that at least one of these stocks will be higher by the time the signal plays out.
But that’s not the only strategy we created…
When Coiled Springs Break the Other Way
We also found something unusual when we were testing these three time-weighted moving averages.
When the moving averages do the opposite of a coiled spring and diverge, you have a very strong trend at hand.
It’s like stretching a spring apart instead of pushing it together. The forces of physics want the spring to coil back.
When this happens in an overextended, uptrending stock, the results for the stock to retrace are quite consistent…
69% of the time we tested this signal, the stock was lower, with the exit signal hitting when the stock crosses back below the shortest-term moving average or 21 days later.
Here are the top Bearish Divergence signals from earlier this week…
Let’s zoom in on that first name, Intuit (INTU):
Intuit has been a huge winner this year, with the stock up from around $620 a share in January to $771 per share, at the time of this writing.
The time-weighted averages are all very far apart from each other – diverging strongly to the upside.
You might look at this and think this is a stock in a strong uptrend, and one you wouldn’t want to fade. But when the stock has shot up this fast, our data suggests you want to bet on a reversal.
Here’s another example in Seagate (STX):
STX has recovered nicely from the post-Liberation Day low, with the stock surging from $70 to nearly $127 in just 2 months.
But this system says the move is too much, too fast. More likely than not, STX will be lower in the next 21 days.
Remember, these are the kinds of setups that Jeff Clark would spend hours seeking out on his own, chart by chart.
And now, thanks to the power of TradeSmith’s software, he doesn’t have to… and not only that, but you can see the best of the best opportunities for yourself right in TradeSmith Finance.
Big disclaimer though.
If you’re going to follow these trades, I still highly recommend following along with Jeff’s recommendations. Jeff knows how to pick the best options trades in order to balance the risk and reward in your favor, and make the most of these moves.
Over the last year, these setups altogether have delivered an average winning gain of about 5.8%. That’s not huge on its own, but when amplified with the smart leverage options provide… it’s ripe for huge short-term returns.
As I mentioned, Jeff identified 10 coiled-spring setups for viewers of yesterday’s webinar, The Countdown to Chaos Event. We’ve made a replay available – but be sure to watch it now. By tomorrow, the setups could be gone.
All the best,
Keith Kaplan
CEO, TradeSmith
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