How Much Winning Is Too Much Winning?

How Much Winning Is Too Much Winning?

By Michael Salvatore, Editor, TradeSmith Daily

In This Digest:

You can, in fact, win too much…

I know, that sounds like sore loser talk. In most arenas it would be.

But in the financial world, you generally don’t want to join in on a victory party when it’s gone on too long.

It’s like showing up to an all-out rager in a college town… at 2 a.m. There may be more fun in store. But you’ve already missed the keg stands, and euphoria is quickly shifting to regret.

I say this because the S&P 500 ETF (SPY), as of Monday’s close, posted a five-day win streak. That’s relatively uncommon, happening only 151 times since the ETF’s inception in January 1993.

Buying on a five-day win streak and selling the next day is basically a coin-flip move. It has a win rate of 51.7% and an average trade result (netting out winners and losers) of -0.01%.

Holding for 21 trading days, or about a calendar month, is a bit better – a 74.3% win rate and an average trade of 1.4%.

In this scenario, winning trades tend to show gains of 2.7% – which, annualized, beats the long-term yearly return of stocks. And losing trades return -2.6%, pushing the risk/reward in favor of a buy.

But I wanted to see if there was an optimal time to “leave the party.” So I tested win rates and returns on various win streaks for the S&P 500 ETF. Here are the results:

Turns out, we’re right in that sweet spot of trading win streaks.

Historically, buying and holding for 21 trading days after a five-day win streak has the highest win rate (77.60%) and the third-highest average trade result of all valid timeframes, while remaining statistically significant with 107 trades. (SPY has never recorded a win streak longer than nine days in a row.)

You can play around with streaks longer than five days, but both your positive returns and your win rates start to drop. Not to mention just how much rarer these signals are.

So, I’ll call it and say six days of winning is starting to be “too much winning.”

Now, let’s make it interesting…

We can also look into the components of the S&P 500 and see which stocks are the best to hold after their own five-day win streaks.

Nearly two dozen stocks are on such win streaks right now, like Kinder Morgan (KMI), Deckers Outdoor (DECK), and Garmin (GRMN).

But only one stock, on a four-day win streak as I write, broke into the top 10 in terms of win rate.

As with any stock study, we removed instances where a single trade accounted for more than one-fifth of the total historical profits from trading under these circumstances. That purifies the data and shows only the most consistent winners.

Here were the top 10 best-performing stocks to own for 21 days after five-day win streaks:

Win rates were relatively high across the board here, showing that five-day win streaks have continued to be winning signals even down to individual businesses. The most consistent of these was arguably utility company NiSource (NI), with a 69.8% win rate across 96 trades.

But the only stock in the above list that’s currently having a win streak of five or more days is Broadridge Financial Solutions (BR). That stock has shown an average trade result of 2.63% after moving higher five days in a row, with a 69.6% win rate, and we have 56 previous instances of data to look at.

BR closed higher on Monday. (And it’s looking like it will on Tuesday, as I write, which would be six days in a row.) That’s a pretty strong signal to get long for the next calendar month, especially considering the tailwind of end-of-year seasonality.

If you weren’t following bitcoin last week, you probably are now…

After months of an agonizing, slow grind lower, bitcoin broke out in spectacular fashion.

Over the weekend it crossed $80,000 for the first time ever. As of Tuesday, it’s at $89,000. That’s over $200 billion in added market cap in just a few days.

Safe to say the pile-on is getting a bit extreme. We don’t have to feel it – we can see it. Bitcoin’s daily Relative Strength Index (RSI) is at its highest level since early 2024, when billions of dollars were flowing into the new bitcoin ETFs:

You’re probably expecting me to say that bitcoin is due for a pullback next.

That sure feels right, and might indeed be what happens…

But the data disagrees.

I went back through the bitcoin data and tested what happened after BTC crossed above an 81 on its daily RSI since 2011.

That’s happened 150 times since then… and it turns out, in most cases, you would’ve made great profits. Especially if you held for the longer term:

The longer you held bitcoin after it went above 81 on its RSI, the better your odds of success… and the better your return. A five-day hold time, for example, resulted in average gains of just 6.3%. Go long and strong for 90 days, however, and your results jumped to an 83% win rate and an average trade (wins and losses) of 103%.

The average loss jumped with longer hold times, too. That accounts for the times that bitcoin experienced a “blow-off top” toward the end of its cycle.

But it bears mentioning that we’re historically closer to the start of the cycle than the end.

As we’ve observed in the past, the amount of time it takes for bitcoin to peak after its periodic “halving” – when the amount of BTC rewarded to miners is reduced by half – has lengthened over time. We estimated the current cycle will last about 602 days from the halving, which puts the potential bitcoin peak at the start of 2026.

I know I’ve been talking about bitcoin a lot lately. I’m not going to apologize for it. My job, after all, is to put great moneymaking ideas on your radar.

If you bought bitcoin when I first started talking about it here in TradeSmith Daily in October 2023, you’ve nearly tripled your money. That’s one of the best buy-and-hold returns of the past year, and one of a few rare large-cap assets to post returns of this magnitude.

Last word on this: It’s almost time to start talking about “altcoins,” or any other cryptocurrency that isn’t bitcoin.

This is the chart of Ethereum (ETH) – the No. 2 crypto by market cap – priced in bitcoin (ETH/BTC). What we see here is a very long and very tight falling wedge pattern that just recently tried to break out:

ETH had a couple failed breakouts earlier in the year. And to be clear, bitcoin is still dominating the crypto trade. But this chart is absolutely worth watching.

A definitive breakout and bottom on this chart will be necessary to see substantial gains in altcoins. That’s because a large portion of altcoins are built on the Ethereum network. In dead simple terms, think about it as if the internet was a tradable asset… it stands to reason that quality website-based businesses (ETH-based altcoins) would follow the price action.

If and until that happens, do yourself a favor and stick with the top dog, bitcoin.

But if it does shift, it’ll be time to start speculating in the smaller-cap crypto space, just as it is currently in equities.

The elephant in the room is inflation…

On November 5, the United States elected an elephant to set up shop in its most important room, the Oval Office.

It also elected dozens of other, smaller elephants to hang out together in the halls of Congress. So many that they’ll now outnumber the donkeys.

And as we’ve pointed out recently, that elephant has proposed two key policies that are inarguably inflationary: mass deportations of undocumented immigrants, which will likely drive wages higher… and broad-based tariffs on imports, which will raise costs on a ton of consumer products.

With the help of his smaller elephants, the big elephant is very likely to get his agenda through very quickly.

That’s why Treasury yields have been basically screaming higher over the past few months, coinciding with the Republican Party’s odds of victory.

All this is to say, our call for inflation to reignite in 2025 just got a whole lot more firepower.

Preparing for inflation is easy enough as an investor. You want to be out of cash and bonds and into profitable businesses and inflation-resistant areas like tech, bitcoin, and precious metals.

What’s just as important as doing this, however, is making sure you’re in the best stocks. These companies’ gains will far outpace inflation.

The good news is, stock returns have sped up in recent years, too. Take a look at this chart tracking how many stocks have doubled per year over the past few decades:

In the 1980s, there were maybe 25 or 30 triple-digit winners in a year.

Nowadays, there have been even more than in the dot-com days of the 1990s: 400 per year or more – a more than 10-fold increase.

And hardly anyone has found more triple-digit winners over the decades than Louis Navellier of InvestorPlace.

Louis made his name as the “king of quants” in 2002 – when he was one of the original Nvidia (NVDA) bulls. All because of his grad school research into the most powerful predictive factors of stock performance.

Louis’ revolutionary stock-grading system let him identify top performers with ease – like Intel (INTC), Monster Beverage (MNST), Google (GOOG), and Apple (AAPL), as well as NVDA – long before they were household names. And he’s still at it today.

I mention it because our CEO, Keith Kaplan, has just entered TradeSmith into a bold new venture to bring you the best of Louis right in your TradeSmith Finance dashboard.

To see where these two investment pioneers are finding the best potential for 100%-plus gains – so you can far outpace inflation in the years to come – click here to watch their presentation on the Universal Stock Grading System.

To your health and wealth,

Michael Salvatore
Editor, TradeSmith Daily

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