Big Decline. Big Rally. What the Charts Tell Us About What Comes Next | Katie Stockton

Episode Summary

Executive Summary: Katie Stockton argued the market is in a secular bull within a cyclical bear phase: 2025 looks like an “off year” for U.S. equities, with weakening breadth, fading momentum, and elevated sentiment suggesting near-term downside or choppy rotation. She sees opportunity in international equities, defensive sectors, gold, and selected tactical risk management, while remaining cautious on crude, Bitcoin, and stretched U.S. leadership.

Main Topics: Macro technical outlook for 2025 (Priority: 5/5): Stockton framed the market as a secular bull experiencing a cyclical bear cycle, with long-term and short-term sell signals emerging after the April low and the post-rally exhaustion becoming visible on multiple timeframes. Technical interpretation of S&P 500 charts (Priority: 5/5): She explained how monthly and daily indicators—moving averages, DeMark signals, stochastic oscillators, MACD, and cloud models—help identify trend exhaustion, sentiment extremes, and likely support/resistance zones. Market breadth, sentiment, and the April reversal (Priority: 4/5): The discussion emphasized how breadth deterioration, fear/greed extremes, and gap behavior near the April low signaled a tradable bottom and then a rapid reversal into overbought conditions. International equities and China relative strength (Priority: 4/5): Stockton argued that international equities may have a more balanced year relative to the U.S., with China technically improved over the long term but still difficult to time tactically. Sector rotation and the TAC ETF process (Priority: 5/5): She outlined how Fairlead Tactical Sector ETF uses relative strength, momentum, and overbought/oversold signals to overweight stronger sectors and shift capital into defensive or risk-off assets when sectors fail to qualify. Cross-asset signals: spreads, commodities, FX, and crypto (Priority: 4/5): Credit spreads, crude oil, gold, the dollar, and Bitcoin were reviewed as technical indicators of risk appetite, liquidity, and trend durability, with gold and the dollar showing clearer longer-term signals than Bitcoin or crude.

Key Arguments: The market setup is best understood as a secular bull with a cyclical bear cycle underway; the 2025 environment is likely volatile and less favorable for U.S. equities. Long-term exhaustion signals and short-term momentum rollovers argue for caution after the strong post-April rebound. Market breadth matters: narrow leadership can coexist with decent breadth, but current breadth deterioration suggests less upside durability and greater stock-selection importance. Sentiment tools are most useful when combined; the April low showed extreme oversold readings, while the post-rally move now appears closer to greed than fear. International equities may outperform on a relative basis this year, though the more immediate setup may still allow a short-term U.S. bounce. China looks better technically than many other equity markets on a long-term basis, but the turnaround is likely to be gradual rather than a quick V-shaped recovery. Sector rotation should favor defensives and interest-rate-sensitive areas like utilities, real estate, and consumer staples over stretched areas such as technology. TAC’s process seeks to lower drawdowns by reallocating to treasuries and gold when sectors fail technical criteria, rather than forcing exposure to weak areas. Credit spread widening is a warning sign for equities and suggests the macro backdrop is weakening. Gold remains in a strong secular and cyclical uptrend, while crude oil and Bitcoin appear more vulnerable to retracement or consolidation. The dollar’s breakdown signals a broader weakening trend, with implications for global assets and cross-border relative performance.

Data Points: S&P 500 rally off April low: about 24% - Stockton cited the post-April rebound as strong but increasingly exhausted. Market sentiment reading near April low: around 3% - Fear and Greed Index reading described as an extreme oversold condition near the low. Current sentiment reading: around 70% - Fear and Greed Index level described as approaching contrarian greed territory after the rebound. Technical lookback on monthly charts: about 12 months - Monthly indicators were described as capturing roughly a year of trend/momentum implications. Weekly gold consolidation outlook: six to eight more weeks - Weekly gold signals suggest a near-term consolidation before the long-term uptrend resumes. Bitcoin breakout level: just north of 108,000 - Bitcoin’s breakout was tested around this level but lacked confirmed follow-through. Crude oil support break: $65 to $67 per barrel - Main support zone that broke down and confirmed a bearish technical shift. Crude oil next support area: $55 then $45 - Stockton identified $55 as temporary support and $45 as a plausible lower technical target. ETF sector bucket count: up to 8 equal-weight buckets - TAC can allocate across eight qualifying sectors, with excess capital moved into risk-off assets. Risk-off asset classes in TAC: short-term treasuries, long-term treasuries, gold - These replace excluded sectors to help reduce drawdowns and correlation.

Pivotal Quotes: "we have, I would say, in its simplest form, a secular bull with what we think is a cyclical bear cycle underway" — Katie Stockton: Her core market thesis for 2025. "If you see a gap following a big downdraft like you did into the April low, it's more likely exhaustive. And then if you see the gap coming out of it, that's more likely a breakaway gap." — Katie Stockton: Explaining how gap behavior helped identify the April low and subsequent rebound. "I do believe that you can make, you know, sort of investments based solely on technical analysis." — Katie Stockton: Her closing view on the validity of technical analysis as a standalone discipline, especially top-down.

Implications: Listeners should expect a choppier, more defensive 2025 with more value in tactical rotation, breadth awareness, and risk control than in simply owning the market cap leaders. International, defensives, gold, and disciplined technical signals may offer better opportunities than chasing momentum.