Fundstrat: A Technical Roadmap for Early 2026
Audio Brief
Show transcript
This episode features Fundstrat Head of Technical Strategy Mark Newton, who provides a technical outlook for early 2024, analyzing the divergence between major indices and critical sector rotations.
There are three key takeaways for investors. First, the current lag in the Nasdaq represents a catch-up opportunity rather than a bearish signal. Second, portfolios should pivot toward cyclical sectors like Industrials and Financials. Third, cryptocurrency markets may face a short-term top in late January based on technical cycle analysis.
While the S&P 500 has hit new all-time highs, the Nasdaq 100 has demonstrated lagging behavior. Newton views this divergence as a setup for a catch-up trade, urging investors to watch for a break above the December peaks in the QQQ ETF to confirm the broader technology trend. Until that breakout occurs, caution is warranted in aggressive tech exposure.
In terms of sector allocation, the technicals favor a rotation away from pure technology and into old economy sectors. Newton specifically identifies Industrials and Financials as current leaders. Conversely, investors looking at the Energy sector should be patient, as forecasting models suggest the sector will undergo a bottoming process in mid-to-late February before becoming attractive again.
Finally, regarding digital assets, Newton applies Fibonacci retracements and time cycles to map Bitcoin's trajectory. The analysis points to a potential short-term peak in late January, suggesting traders should consider selling into strength before a likely correction retests lower support levels.
This has been a briefing on Mark Newton's technical strategy for navigating early 2024 market divergences.
Episode Overview
- Mark Newton, Head of Technical Strategy at Fundstrat, provides a technical outlook for early 2024, analyzing the divergence between the S&P 500's new highs and the lagging Nasdaq (QQQ).
- The discussion breaks down critical sector rotations, specifically identifying Industrials and Financials as current leaders while forecasting a bottoming process for the Energy sector in February.
- Newton applies advanced technical methodology, including Fibonacci retracements and cycle analysis, to map out price targets and turning points for Bitcoin and the broader crypto market.
Key Concepts
- Divergence and Lagging Indicators: While the S&P 500 (SPX) hit new all-time highs, the Nasdaq 100 (QQQ) did not immediately confirm this move. Newton views this "lagging behavior" not as a bearish signal, but as an opportunity for a "catch-up trade." He emphasizes that a healthy bull market requires these key indices to eventually synchronize, and investors should watch for the QQQ to break above its December peaks to confirm the broader trend.
- Sector Rotation Strategy: The episode highlights a shift away from a pure technology focus. Newton rates Technology as neutral for the year, instead advocating for an overweight position in "old economy" sectors like Industrials and Financials. He uses the Dow Jones Transportation Average as a confirmation tool—when Transports rally, it validates the strength in Industrials.
- Fibonacci Price projections: In his analysis of Bitcoin, Newton demonstrates how to use Fibonacci measurements to determine resistance and support. He looks for "wave equality" (where the current price move equals the length of a previous move) and 50% retracements of major historical declines to set profit-taking zones. This moves trading decisions away from sentiment and toward mathematical probability.
- Market Breadth vs. Seasonality: Newton contrasts the widely cited "Santa Claus Rally" failure with actual market structure. While the failure of this seasonal signal is typically bearish, he argues that the underlying market breadth (the number of stocks participating in the rally) is actually healthier than it was during similar setups in the previous year, suggesting the market is more resilient than seasonal statistics imply.
Quotes
- At 0:58 - "We know that we still have quite a bit of lagging behavior by QQQ, which really has not lived up to how the S&P is doing... I don't know if this is going to be a straight shot and I do suspect there will be some backing and filling." - Explaining why headline index highs can be misleading if underlying components haven't confirmed the breakout.
- At 4:00 - "The market is actually in better shape to start the year this year than it was last year... Last year we did see much more signs of broader breadth deterioration I think into year-end that gave a pretty noticeable warning sign." - Clarifying that technical market structure (breadth) often overrides popular seasonal axioms.
- At 8:18 - "You always want to compare one wave in both price and time to a prior wave to be able to fine-tune... and when you overlay DeMark with that and cycles, you can get even more accurate." - Teaching the multi-factor approach to technical analysis that combines price geometry with time cycles.
Takeaways
- Monitor the Nasdaq Breakout Level: Do not assume the tech rally is confirmed until the QQQ ETF breaks above the 412-413 level (specifically clearing the December 26th peaks). Use this level as a trigger for adding aggressive technology exposure.
- Rotate into Cyclicals: Shift portfolio allocation toward Industrials and Financials immediately. For the Energy sector, be patient and look to accumulate positions between mid-and-late February, as the sector is expected to make one final low before bottoming.
- Sell Crypto Strength in late January: utilizing cycle analysis, anticipate a short-term top in Bitcoin around mid-to-late January. Use this window to sell into strength, as technical indicators suggest a subsequent correction that could retest lower support levels (potentially down to the high 50k/low 60k regions based on wave equality).
