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Right now, we are going with two assumptions: (1) that we are going to be right about a pullback into the April to June time frame, and (2) that Transports and Small Cap will outperform on a decline. We all know Tech is the largest sector in the S&P 500, and it is over owned by retail investors. This could make it more vulnerable.
We have advocated selling off some unwanted positions and taking some profits, preparing for an expected pullback into the April through June timeframe. We figured metals could advance into the end of the month and expect GLD and SLV to have a difficult time in February.
SPY should hold 675 and QQQ 616. Below those numbers would be an indication that some corrective behavior has started. Fred’s Price Oscillators for Crude Oil and Gasoline are down without a buy pattern. This suggests a pullback now and a summer rally, a normal seasonal pattern.
While the leading stocks in IYW and XLK are still strong, we are seeing more weakness in secondary tech. We should be moving into other areas, such as XLI, as an example. Having some representation of other indexes in portfolios is also important – and we have discussed switching into RSP as opposed to SPY.
We still look for a rally into the end of January after a choppy week. TLT is starting to perk up as well, as long as it can stay above 87.50.
We note that RSP and Small Cap ETFs continue to look stronger than IYW (Technology), which we view as a plus suggesting leadership change. We still maintain our forecast for an intermediate peak near the end of January with a solid tradable low in May.
We have moved above 692 today, faster than we thought! Ideally, we will close above 692 in the next few days/week to absolutely confirm our view. We have been asked what bond ETF to buy for a trade into the summer. Our favorite here is MUB. QTUM is breaking out of a consolidation and as long as it holds 107 it is strong enough to buy.
Short-term breadth indicators reinforce this: the next few weeks look favorable for gains, likely strongest in the indexes and sectors that have lagged thus far. Indicators suggest that tech may perform less well than other sectors in the first part of the year, but if they get a significant enough pullback, they should show strength in the second part of 2026. For now, we look for slightly lower rates in 2026.
Our outlook for the end of 2025 remains unchanged: we expect the market to finish higher, albeit with thin trading volume and limited participation.
We provide an update on our Tax Bounce list. All stocks on the list have triggered at their buy limits, the last on December 22nd. To recap, the rules for the list are to buy at the buy limit until the last trading day of December, and then sell at either the price target or the last trading day of January 2026, whichever is sooner.