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For today’s Market Minute, I’m unlocking an episode of Tradesmith Unfiltered. These currently are only available to our TradeSmith Platinum subscribers, but I think this is important for all my subscribers to have access to.
2026 has been a year of short-term trades: Everything from AI to oil to gold is flipping back and forth at warp speeds. The price swings have left investors scrambling to keep up.
This episode, I’ll walk you through the causes and effects of the ongoing volatility… and how we’re making the most of the extreme swings.
Check out the recording below, or scroll down to read the transcript.
Transcript
Adam Johnson: Welcome to TradeSmith Unfiltered. I’m your host, Adam Johnson, former Bloomberg anchor and founder of the American Ingenuity portfolio. Have you noticed that everything has become a short-term trade?
AI goes from hot to not in about 24 hours, and then back again. Ditto gold, oil, you name it. TradeSmith’s options trading expert, Jeff Clark, fortunately, is with us. He thrives in this volatility.
He loves it. Jeff, we need you to explain what is driving all this back and forth.
Jeff: Well, I will try my best to do that for you, Adam.
Well, essentially, you know, the entire year has been, you know, folks have talked about a rotation strategy, where basically money comes out of one sector and flows into another. And that is, in part, what has kept the indexes relatively high, near all-time highs, in fact, while underneath the surface of the market, all these sectors and all these stocks are undergoing their own little correction phases. Now, this isn’t anything that’s really new, but it’s sort of been accelerated in 2026. You know, we started off and in early on in 2026, it was energy and gold and silver that were really racing away.
And then around March or so, energy and gold and silver entered their correction, and other things picked up the pace. So money started going into semiconductors. It started going into banks. It started going into software of all things, which had underperformed for so long.
And all we’ve seen all year long is money coming out of one sector and into another and back and forth and back and forth. So the indexes themselves, you know, the S&P 500 is up about 10% or so, so far this year. But really since June, it hasn’t done anything. It’s sitting around 7,700, and that’s basically where it was back in June.
And so folks who’ve traded index funds haven’t really done anything. They haven’t made any money. But if you’ve been able to go from one sector to another, trade in and out of those sectors, you could actually do pretty well. You just have to be able to get ahead of the institutional money that’s making those sector changes.
And so what I’ve tried to do in my services and what I’ve advised subscribers is basically what we’re trying to do is to get in front of that, to figure out the sectors where money is about to flow into, and also the sectors where money is starting to come out of. And by recognizing that, we’ve actually been able to do pretty well this year.
Adam: Well, that’s key. I understand rotation.
But how do you actually recognize when something that’s been hot is going to start cooling off or, you know, vice versa, something that’s been out of favor suddenly, you know, you might want to buy it? What do, what do you look for in terms of spotting-
Jeff: There’s a handful of indicators that you can use that indicate overbought or oversold status. One of the simplest ways to measure it is to determine how far above or below various moving averages a sector happens to be trading. So for example, if you, if you go back in February and you look at gold and silver, and, you know, that’s when it went through that that huge parabolic blow-off.
Gold I think was $5,300. Silver was over $105 an ounce. And it was just an amazing move. But throughout history, gold and silver had never traded that far above their 50-day moving average line.
So from a contrarian trader’s perspective, gold and silver were extremely overbought. They were due for at least some sort of mild correction, if, if not something a little bit major. So that was probably the worst time to be buying into gold and silver. So you knew they had to cool off.
It’s just, it’s sort of like, think of it like a rubber band I use this analogy a lot. You know, you get a rubber band, it can only stretch so far, and when it’s stretched to the max, it’s either, it’s either going to snap or it, it’s going to come back into place. It’s either going to bust open or snap back. And so we’ve consistently bet on the snapback.
And that’s also true of stocks that are oversold. Stocks and sectors can get deeply oversold beyond historical measures, they tend to snap back and rally. And you can look at software back in April and in June.
IGV was the exchange-traded fund we had talked about back then. That had a fantastic rally. It was one of the top-performing stocks since about June. So, you know, you can trade it both ways.
A lot of folks try to do both, where they’ll short the hot sectors and they’ll buy the cool sectors and look for a rotation. I tend to focus mostly just on the buy side of things. I’ll do short trades once in a while. But for, for most people, I think it’s a lot easier to go from the long side.
And when I’m looking at going from the long side, I’m going to look for those sectors and those stocks that are deeply oversold, where the rubber band can’t really stretch that much more, and they’re ready to snap back. And a lot of times it, it depends on how far that stock is from its 50-day moving average, or its nine and the 20-day exponential moving averages as well. But there’s a lot of different technical indicators that can determine overbought and oversold conditions.
Adam: Got it. You’ve also written to clients in your reports about, cycles getting compressed. In other words, if it used to take six to nine months for a cycle to sort of come and go, now it’s three or four months, maybe it’s even a month. What’s driving that compression? Six to nine hours sometimes.
Jeff: It really is fascinating to look at it. I used to call these things Rip Van Winkle trades, where a sector would get so oversold, all you had to do is buy into it, have faith that it’ll come back, buy, buy the stocks, and then go take a long nap. And then six months, nine months, a year down the road, you’d be very happy to a changed world when you wake up. The problem now is these things are happening within days or, or weeks.
So everything is compressed. Things are moving so much faster. And I think that’s, that’s partly the development of technology. It’s partly the development of AI and algorithms, the use of a- algorithms by a lot of institutions.
So money moves a lot faster than it used to, which can be sometimes intimidating for folks who aren’t used to that sort of rapid in-and-out type of action. But for traders who, who thrive on that, it’s a very nice world.
Adam: Yeah. Oh, it sure is. Does that also mean that the old, tried and true buy and hold model is, Well, I don’t know if it’s dead, but it’s certainly less, seems less relevant than it used to be. Your take?
Jeff: I absolutely believe that. Like I said, you know, since June, the S&P 500 hasn’t really done anything, so buy and holding the S&P 500 has been dead money.
But if you’ve been in and out of different sectors and stocks in those sectors, you could have done very well.
Adam: Recently we saw that spike in the VIX, the volatility index, you know, call it a week ago or so. And it seemed like that happened, and then AI started to sort of steady or at least it stopped going down.
You think that VIX was meaningful?
Jeff: The VIX is meaningful to a handful of things. You know, it’s similar to every other sector. You know, when you get expanded conditions, you get, the rubber band stretching too far.
The VIX is a very good indication of that. When the VIX extends too far, it’s going to snap back. So anytime the VIX pops above – I use the Bollinger Bands as a measure of overbought and oversold indicator on the VIX. I don’t want to get too into the weeds on this, but basically, the Bollinger Bands tell you the highest probability trading range for a stock or an index.
And when you apply it to the VIX, the VIX gives trading signals anytime it trades above its upper Bollinger Band and then comes back inside, or any time it trades below its lower Bollinger Band and then rallies back inside. So last week, the VIX traded above its upper Bollinger Band when it spiked above 20, and it came back down inside.
Technically, that’s a VIX buy signal. Those tend to be short-term, anywhere from maybe three, four, five days to a couple of weeks.
And it played out really well last week. You know, if you were to buy the S&P 500 when it actually the VIX came back inside its Bollinger Bands, you did pretty well. You caught a nice little move. Now you know, its middle part of the band, so the easy money is kind of off the table for that.
But your question was, does the VIX help explain the rally in AI stocks? And I think it does to the extent that we saw a certain level of fear, which is what the VIX measures, and we saw a capitulation of that fear, and that encouraged us, folks, from that point on to go risk on, if you will. They are more willing to take on risk.
Adam: That’s a great setup. Thanks for sharing that. Look at the VIX versus the Bollinger Bands up and down to pot those, spot those pivots. Let’s talk about some of your, recent successes, like financials.
I think you’ve been very active in the financials, and they’ve worked for you. You want to share some of these trades?
Jeff: Well, yeah, I can talk a little bit about that. In all of my services, I think we took some positions in financial stocks a couple of weeks ago, early October.
Partly because, as I mentioned, things got oversold. You know, the financial sector was trading historically far below its 50-day moving average. All of the moving averages were expanded. We had basically oversold conditions on a number of things, so it looked like that rubber band was ready to snap back.
The other thing that helped with that, talking about rotation, is semiconductors had the opposite picture. Semiconductors were overbought at the time, trading very high above their moving averages, looked like the momentum there was starting to cool off. Now, one of the things I’ve noticed throughout the year here, 2026, it used to be semiconductors and financial stocks led the market. So if we’re in a bull market and the bull market is strong, financials are moving higher, semiconductors were moving higher.
In 2026, it’s been a little bit different. Semiconductors have moved one way. Financial stocks have moved the other. Not exactly opposite, but opposite enough to where it tells you that money was pulling out of one sector and going into the other.
So money was starting to come out of the semiconductor stocks in early October. And where does it go? Well, since all year it had been flowing into financials, it just bolstered the case for financial stocks. So we had a nice little trade on XLF.
We had a nice little trade on Fiserv. Both of those did, did very well. But that has cooled off a little bit. So even though I think financials still have some room to go, semiconductors have taken the bulk of the move here over the past couple of days.
We’ve seen semiconductors start to rally while financial stocks have sort of marked time. So it’s not that one sector moves up and the other one moves down. It’s one sector moves up stronger than the other sector. And if I can share my screen with you, I’ll show you a chart that I use to sometimes figure out which one is going to move faster.
So let me see if I can pull that up here. So this is This very first one, this is the semiconductor ETF. So basically, you can just take a look at this.
You can see when they’ve had a very strong rally phase April through June, and then it cooled off. And then just last week we started to pick up a little bit again. If you look at XLF, which is the one below it, you see sort of the opposite pattern. You saw a nice little rally phase in early April, but it cooled off.
Semiconductors took the baton at that point. And then you saw a nice little rally starting in October, which has started to cool off just now. And if we go back to the semiconductors, you can see how semiconductors pulled in in October, and they’ve just started to heat up now. So this is just a simple comparison and things that I’ve noticed that, you know, when the semiconductor stocks have been hot, financials have been a little bit cool and vice versa.
So I look for oversold or overbought conditions in one of them, and it leads me to move money into the other one, just sort of as a rotation trade, and that has been playing out pretty well all year. Now, if we extend that to other sectors, I’ll talk about what looks interesting right now. Please. So here is, this is a chart of the aerospace and defense ETF, XAR.
Now, what I’ve done here is I’ve put this chart up against the S&P 500. So this is called a ratio chart. What it means is when the chart is moving up, that sector or that stock is outperforming the S&P 500. When the chart is moving lower, that stock or sector is underperforming the S&P 500.
What I look for is opportunities to buy. I look for this chart to significantly underperform the S&P 500 to the point where it is near its lowest level in a year, or in this case, two years, and ready to bounce back the other way. So what you’ll notice here, if you look at XAR, you look at this ratio chart, you’ll see that the ratio chart is historically far below its moving d- 50-day moving average. That’s that blue line right there.
Mm-hmm. It’s near its low for the last couple of years, so it’s significantly oversold, and it’s very far below where it started the year. So this is an oversold condition that, again, is that rubber band stretched to the maximum, I think, to the downside. So when you look at individual stocks inside this sector, you look at the Raytheons, you look at GE, you look at Honeywell, you look at LHX, CATOS, C-T-O-S, the drone manufacturers.
All of them have a very similar-looking chart. They’ve all been deeply oversold. They’re all trading historically far below their moving averages, and they’re starting to form what I call bottoming formations, and bottoming formation is basically where they just consolidate for a little bit before making that turn. So in other words, the pace of the decline has slowed down a little bit.
So this is a good example of what I think a sector that, you know, if I’m playing a Rip Van Winkle trade, I feel comfortable buying into this sector at the current oversold conditions and then just sitting on it for a few months. As we mentioned, though, oftentimes these Rip Van Winkle trades over this year have been a lot faster than a few months, so you still have to pay a little bit of attention to it, but it’s something that I think we can go back to in three months, six months from now, and this chart will probably be higher, along with a lot of the stocks inside that sector also moving higher. Now, if I go down and show you another sector Let me see if I can do that, whoops, without going too far. And by the way, before you leave aerospace, you know, just looking at that chart, it, it makes me realize why we need the charts and we need the data because intuitively, if you said, “Well, you know, the world’s at war,” whether it’s Russia-Ukraine, whether it’s what’s happening with Iran, you would think defense stocks would be hot.
I mean, we’ve got to replace all the missiles. So you’d think they’d be up, but no, they’re down, and so having the process that you have, looking at the charts, seeing the relationships, that’s what alerts you to the opportunity. It’s not the intellectual conversation, you know? No, you know, a lot of times, really, really smart people are very poor investors, so the intellectual conversation gets lost because the market is a discounting mechanism.
So you’ll notice when were the defense stocks the hottest? They were the hottest back in January. That was before all of this stuff developed in the Middle East. Right.
That, we might say, was maybe predicting that there was something in the works, that the stocks were already anticipating something occurring that required them to obviously build more missiles and do more things and generate more, weapons. So now that we’re way oversold, maybe that’s a condition predicting the end of whatever turmoil might be coming up in the Middle East. I don’t know. But that’s, that’s the theory behind using the stock market as a discounting mechanism.
Now, if you go down I’m going to go down one further and go to, the energy sector. Now, this is an interesting situation with energy. Remember, energy at the very beginning of the year, back here, January through April, energy stocks were hot, hot, hot. And so relative to the S&P 500, they, they had started off the year relatively cheap, and then they got very, very expensive.
And then they cooled off in the middle of the summer, and now, again, energy stocks have been some of the hottest stocks in the market right now. But the question becomes, do we really want to be buying into energy stocks when they’re trading far above their various moving averages, where they’re trading relatively high compared to the S&P 500? Similar to where it was back in April, if you will. This might be sort of a dangerous time to be buying into the energy sector.
Now, again, if the market is a discounting mechanism, then possibly we’re ready to start rolling over on the energy sector, maybe as a result of, I don’t know, a decline in, in the conflict in the Middle East. I don’t know. Maybe that’s part of what’s, what’s going to be occurring. But this is probably a poor time to be buying into energy.
It is, however, probably a very good time to be taking profits if you were in energy for that period of time. So again, this is sort of a, just a rotation trade. So where is money going to come out of in order to fuel the defense stocks higher? Maybe it comes out of energy, just as an example.
Sure. In this final chart here I’ll share with you, this is the Russell 2000 compared to the S&P 500. So the Russell 2000 performed really well the middle of the year, and then it started leaking oil, if you will- and came all the way back down to basically where it started the year relative to the S&P 500. The S&P 500 is doing much better.
So again, when this chart is moving higher, the Russell 2000, the small cap stocks are performing best. When the chart is moving lower, the S&P they’re underperforming the S&P 500. So now you have a situation where we’re back to where we were middle of last year relative to the S&P 500. They’ve underperformed for a, a decent amount of time, couple of months here.
They’ve corrected their earlier gains, and now maybe this is the opportunity to jump in before they start to lead the market higher once again. So if I’m, if I’m setting a plan for the next couple of months and I’m interested in buying into the stock market, I’m probably looking at small caps as the particular sector that will lead the way higher to the end of the year. Yeah. Well, and that would certainly make sense if the Fed is done, raising rates.
I say done. They only did it once, but, you know, there’s an assumption that maybe they’re done. Well, there’s the assumption that maybe they’re done, but there’s also the assumption that maybe they keep going, which is what has been hampering the small cap sector. Now, if the small cap sector starts to rally, as I think it will, that might bolster the opinion that maybe the Fed is on pause or, is possibly done.
It would surprise me that the Fed’s done. I have to be honest with that. But now I’m just trying to talk intellectually rather than just letting the charts do the work for me. So sometimes it’s best not to overthink something.
Just look at the charts, see how, how the sectors have performed relative to the S&P 500, relative to past performance, and sort of, make the assumption that that is going to continue in the future. Yeah, right. One chart that I just can’t make any sense of is Bitcoin. I feel like it’s stuck in neutral.
It was such a market, source of leadership and it’s not been. Any, any thoughts on Bitcoin? Well, yeah. I’ve written, extensively about Bitcoin, the- for the past couple of months.
You know, Bitcoin had that wonderful rally in the midsummer. It was set up for it. It was oversold. All, all of these things that we’ve just talked about, Bitcoin was in that, you know, the rubber band was stretched too far, so it snapped back.
And then it just stalled. I think it got as high as 87,000, and it’s been drifting down or just sort of consolidating around those levels. One of the things about Bit- Bitcoin, and I’ll, I’ll make the same case for gold and I can make the same case for energy stocks as well. Commodities tend to follow the action in the commodity stocks, and I consider Bitcoin a commodity, and so Bitcoin follows the action in the Bitcoin stocks.
So the stocks move first, and then Bitcoin follows along with it. So if you’re interested in buying Bitcoin or you’re interested in trading Bitcoin, you have to follow the action in the Bitcoin stocks. So those are things like MSTR, MicroStrategy, or just called Strategy now. WGMI, which is the exchange-traded fund for Bitcoin mining stocks, but Bit- they also got into AI as well because some of them are data center plays.
But if you follow those stocks and those stocks start to strengthen, then Bitcoin is probably going to start to strengthen. It could be a two-day delay or it could be a two-week or, or a six-week delay. Who knows? But typically, you’ve got to see strength in the stocks first.
We haven’t seen that yet with the Bitcoin miners. The Bitcoin miners have sort of, they’re still down trending. So until they start showing signs of a rally, Bitcoin’s probably not going to get up off the mat. So I don’t have a position in Bitcoin right now.
If I’m leaning any way, I might be leaning a little bit bearish on it, although I wouldn’t short it. I don’t think there’s enough downside potential for it, but I’m not a buyer of it yet. I’m more interested in gold. I think, the gold stocks look to me like they’re almost in an oversold condition.
They’re certainly oversold relative to the S&P 500. They’re at a low valuation range relative to the S&P 500. And once gold stocks start to move, then I feel comfortable adding gold positions because then gold will probably start to move. So that’s more of what I’m targeting.
We got to get the Fed out of the way. We got to get, you know, into a seasonally strong period for gold, which I think starts in about two weeks. So we’ve got some room before we need to start plowing into the gold sector, but it is one of the sectors that I’m looking at as being fairly strong going into the end of the year. Yeah.
Adam: Certainly, end-of-the-year rally is one of Wall Street’s, favorite themes. What about, midterms? Is there a setup, in the market, something you’re looking at that it might be a way to, take advantage of getting through midterms and getting past the uncertainty?
Jeff: Well, that’s a tough one because nobody knows how it’s going to turn out.
Nobody knows for sure how it’s going to turn out, look at what just happened in Brazil, and I’m not saying the same thing’s going to happen here. But we all thought that Brazil was going to go one direction, and then some things happened and it went completely the opposite direction, and then Brazil got smacked. If anything like that was to happen here in the U.S., I think it’d be, it presents a buying opportunity. So if we do get a sell-off relative to the midterm situation, then I think we’ll use that as a buying opportunity.
You know, I might change my mind depending on what happens between now and Tuesday when the actual election occurs, because it depends on what the market does. You know, if the market rallies between now and Tuesday and we’re sitting at, you know, 7,900, 8,000, I’m probably not going to be too excited about buying into that situation. But if the market actually falls, yeah, I think that presents an opportunity. So I’m looking for oversold conditions, and if the midterm elections are a catalyst that create that, then I think that gives us an opportunity for a rally into the end of the year.
If we don’t get a decline on the midterms and we just start taking off, then, you know, I might be a little bit more cautious about jumping into things.
Adam: Yeah, understood. A little advice perhaps for folks, who think about buying IPOs. And I mention it just because everybody’s been talking about Anthropic.
Who knows where they’ll price it. But, IPOs are notoriously tough to trade. SpaceX went up, then it went down, et cetera. Do you have any sort of rules of thumb for, trading or not trading IPOs?
Jeff: I don’t trade IPOs within the first two or three months, simply because there’s, they’re, they’re not liquid enough, to take a, a large enough position and feel comfortable that the technical analysis I’m doing justifies the trade. However, one of the things that seems to always happen with an IPO is whatever it does during its, its initial week or two of trading, one year later, sometime in that one-year period, it comes back down to its IPO price. So if you look at, if you look at SpaceX, SpaceX was 150, I think, on the IPO, rallied up to 300 or something.
It didn’t take a year because everything is accelerated these days, but it came back down and you had an opportunity to buy at the IPO price. So I would never buy an IPO above its IPO price because I think you’ll have an opportunity sometime in the next 12 months to pick it up at the IPO price or better. Oftentimes, after that initial spike, and then you get the first public quarter earnings report, it’ll sell off oftentimes in that situation, and you wind up being able to buy at a significant discount. You can look at a lot of stocks that IPO’d this year.
Many of them, within about six months were trading at a significant discount to the IPO price, and that was usually a really good time to pick it up. So my It’s not set in fast rules other than I will never trade an IPO, never pay more than the IPO price to get into it. And then when it does come down, if I could buy it for half price, if I can buy, you know, SpaceX at 75 bucks, I would’ve been willing to do that. Not that saying that it was going to get there, but what I’m saying is, generally speaking, if you can buy an IPO at half of its IPO price, and there’s a lot of opportunities to do that, by the way, that’s usually a pretty good opportunity.
Adam: Yeah, great advice. Jeff, it’s such a pleasure to talk with you. Thanks for sharing so much insight. Absolutely.
Jeff: My pleasure. Thank you, Adam.
Adam: Well, that does it for us this week, but we will be back next week with another podcast right here on TradeSmith Unfiltered.