Excess Returns Podcast Episode Summary

Podcast: Excess Returns
Episode: Big Rally. First Sell Signal Since April | Katie Stockton on What the Charts Say Could Come Next
Date: October 8, 2025
Guest: Katie Stockton, Founder and Managing Partner at Fairlead Strategies

Episode Overview

In this episode, Katie Stockton returns to discuss the current state of the equities markets through the lens of technical analysis. The conversation covers the strength of the ongoing bull market, recent technical sell signals, sector rotations, implications for technology and AI-related stocks, and key macro indicators such as gold, oil, yields, and the dollar. Hosts Jack Forehand, Justin Carbonneau, and Matt Zeigler guide the discussion, focusing on actionable insights for investors based on recent chart signals and technical patterns.

Key Discussion Points and Insights

1. Current Technical Market Setup

• S&P 500 Bull Market Strength:

  • The uptrend from the April lows has been "almost uninterrupted," with only brief pullbacks.

    "Very strong bull market really almost uninterrupted in terms of the uptrend off of the April low... it just seems like we have not looked back since then." — Katie Stockton [02:29]

  • Sentiment isn’t overly bullish despite new highs, reducing the risk of an imminent reversal.

• Key Metrics and Sell Signals:

  • Importance of the 20-day moving average for short-term trend.
  • Watch for the VIX moving above 18 as a risk signal for a deeper pullback.

    "If the VIX were to shift out of what has been really just a range up above about 18, it would clear some resistance. And that would be another suggestion that we're getting into kind of a pullback mode..." — Katie Stockton [00:00, 02:29]

  • Recent Demark indicator sell signals on both the S&P 500 and NASDAQ 100, the first since April.

    "We do have a new sell signal this week on the S&P 500 from the DEMARC indicators." — Katie Stockton [15:10]

• Loss of Market Breadth:

  • Narrowing of leadership but not alarming yet as most stocks are still participating in the uptrend.

2. Methodology: Key Technical Indicators Used

• Indicator Categories:

  • Trend Following: Moving averages (not just crossovers, but slope is key).
  • Momentum & Overbought/Oversold Gauges: Stochastic oscillators and Demark indicators used to anticipate exhaustion.
  • Support & Resistance: Used to identify downside risk and where buyers may step in.
  • Relative Strength: Sector or stock ratios to the S&P 500 highlight leadership or laggards.
  • Multiple Time Frames: Analysis via daily, weekly, and monthly bars, blending short and long-term perspectives.

• Quote:

  "It's almost like looking at all these tools all at once over multiple time frames. Sounds pretty complicated, but in reality it's very visual and you kind of get into a rhythm when you're doing that." — Katie Stockton [06:19]

3. S&P 500 & Nasdaq Outlook

• Measured Move Target:
  • Price target for S&P 500 is 6,880 for early 2026, holding since summer and now in closer reach. [00:00, 15:10]
• Sell Signals and Consolidation Risks:
  • Confirmation of Demark sell signals could mean a meaningful pullback or at least consolidation for the next several weeks.
  • The NASDAQ 100 signaled a stall before the S&P; watch for momentum loss and leadership from mega-cap tech stocks fading.

    "We do have what I would call is our first counter trend indication since April Low was established on this weekly demarc indicator." — Katie Stockton [16:48]

4. AI & Tech Rally: Corrections and Sustainability

• Not the End for AI/Tech Even if There's a Correction:

  "By no means would I see a correction as something that would mark the end of that theme. Um, you know, it maybe could be the start of a more discriminatory environment as it pertains to the fundamentals of these companies..." — Katie Stockton [19:11]

• Narrowing Leadership but No Bubble:
  • Anticipates more scrutiny on fundamentals rather than a collapse.

5. Sector Analysis: Rotations and Opportunities

• Sector Rotation Benefits:

  • By shifting between winning and losing sectors, investors can improve odds of outperformance and manage concentration risk (e.g., TAC ETF uses this approach).

• Recent Moves & Notables:

  • Upgraded Healthcare for a countertrend rally despite its longer-term downtrend. Pfizer highlighted for a relief rally breakout [20:53, 23:59]
  • Energy sector: Nothing notable recently but sees potential for 2026.
  • Utilities: Not a large S&P weight, but Nextera Energy (NEE) cited as a leadership breakout in both absolute and relative terms. [26:26]
  • Consumer Staples: Weak relative performance unless market corrects, then could serve as a defensive play. [27:29]
  • Financials: Surprise recent laggard—moved from equal-weight to underweight due to breakdowns in relative strength versus S&P. Still good long-term charts, e.g., Citigroup, but short-term loss of momentum. [29:22]

• Quote:

  "Within Staples we don't have a very strong buy signal right now... a lot of those stocks are still Range bound because of that relative performance." — Katie Stockton [27:29]

6. TAC ETF (Fairlead Tactical Sector ETF) Approach

• Dynamic Allocation:

  • Around 87% equity exposure currently, down to 0% possible in bear cycles.

  • Uses sector rotation for both performance and defensive positioning.

  • Benchmarked to R1000 Equal Weight Index.

  • Typically underweight tech relative to cap-weighted funds to manage concentration risk, even though tech still important. [31:26]

  • Gold, Treasuries provide risk-off balance.

    "It's a very dynamic fund that can almost serve as a standalone portfolio. I design it in a way to be something I could put my IRA in and not worry about." — Katie Stockton [31:26]

7. Cap Weight vs. Equal Weight, Breadth Discussion

• Broad Participation, Narrow Leadership:

  • Breadth is broad, but leadership (biggest gains) is in mega-cap techs.

  • Comfortable with concentrated leadership but emphasizes the need for risk management due to concentration.

    "There's a reason they're showing up as the heavyweight positions in these sector ETFs... when they go down, they're going to probably all go down together and probably somewhat, you know, dramatically so." — Katie Stockton [34:51]

8. Macro Assets: Gold, Oil, Bonds, and Dollar

• Gold:
  • Strong, respecting the uptrend; recent breakout above consolidation is bullish. Already exceeded previous upside targets.

    "The uptrend has had momentum across timeframes for a really long time and we've been sort of on board with that." — Katie Stockton [37:10]

  • Use technicals for discipline in reducing position size if needed, always with time frame in mind. [38:32, 39:02]
• Oil:
  • Watching $70 level for breakout; early signs of bottoming but needs confirmation before bullish stance. [41:09]
• 10-year Treasury Yields:
  • Consolidating in a triangle; 4% is key support. Breaks below could signal larger cyclical down move even amidst a secular uptrend. [43:43]
  • Market focus on yields ebbs with volatility; should attention return, watch for volatility-led shifts. [45:44]
• US Dollar:
  • Secular uptrend, but cyclical downtrend inside that; major support near 97.
  • A breakdown below support could mean a reversal of the long-term uptrend. Otherwise, currently a neutral range market. [46:41]

9. Key Risk Metrics & Relationships

• Monitoring TLT (Treasury ETF) vs. S&P 500:

  • Watch for reversals in correlations; could point to heightened risk or opportunity-switching between bonds and equities. [48:25, 49:53]

• VIX:

  • Continue to watch for range breaks and rising volatility as confirmation of increased market risk.

    "We're watching the VIX also very closely. It's been acting a little funny as everyone seems to be tuned into." — Katie Stockton [48:25]

• Mega-cap Divergences:

  • Observes that not all mega-caps moving together anymore, sign of increasing differentiation in leadership.

Notable Quotes & Memorable Moments

• On the uptrend since April:

  "Very strong bull market really almost uninterrupted in terms of the uptrend off of the April low... it just seems like we have not looked back since then." — Katie Stockton [02:29]

• On risk metrics:

  "If the VIX were to shift out of ... a range up above about 18, it would clear some resistance. And that would be another suggestion that we're getting into kind of a pullback mode or consolidation phase that is meaningful enough..." — Katie Stockton [00:00, 02:29]

• On a potential correction in AI/Tech stocks:

  "By no means would I see a correction as something that would mark the end of that theme... maybe could be the start of a more discriminatory environment as it pertains to the fundamentals of these companies..." — Katie Stockton [19:11]

• On managing concentration risk:

  "There's a reason they're showing up as the heavyweight positions in these sector ETFs... when they go down, they're going to probably all go down together and probably somewhat, you know, dramatically so." — Katie Stockton [34:51]

• On chart-based self-discipline:

  "I have a lot of clients that just use technicals for a self discipline because that's the hard part, isn't it? To know when to reduce exposure, especially if something's been working." — Katie Stockton [39:02]

Key Timestamps by Topic

• 00:00-02:29: Overview, current market setup, VIX, summer/fall S&P objective, first sell signals since April.
• 04:44-07:07: Katie's technical toolkit: trend following, overbought/oversold, support/resistance, relative strength, and time frames.
• 10:39-12:37: Discussing short-term vs. long-term indicators, interplay of moving averages and quicker market timing methods.
• 15:10-16:48: Demark sell signals on S&P and NASDAQ, implications for consolidation phase.
• 19:11-20:34: Impact of corrections on AI and technology; discrimination in fundamental outlooks.
• 20:53-31:26: Technical analysis applied to sector rotation: healthcare upgrade, energy, utilities, consumer staples, financials.
• 31:26-34:51: How the TAC ETF implements tactical and defensive allocation strategies.
• 36:58-37:10: Macro assets overview: gold's breakout, discipline on profit taking.
• 41:09-43:43: Oil's technical range and what would signal an upside turnaround.
• 43:43-45:44: 10-year yield technical setup, significance of breaking support.
• 46:41-48:10: Dollar index, support and resistance, broader macro implications.
• 48:25-51:20: Watching TLT vs. stocks, shifting correlations, VIX, risk insights.

Conclusion

Katie Stockton's latest analysis highlights a robust bull market that continues to ride strong technical support, with first real signs for caution since April emerging via Demark signals on the S&P 500 and NASDAQ 100. While the tech and AI rallies may pause, she emphasizes that corrections are healthy and far from signaling the end of those themes. Sector rotation and risk management remain critical as breadth narrows but overall participation remains broad. Macro indicators such as gold, oil, yields, and the dollar are viewed through a disciplined technical lens, always keeping timeframe and risk metrics front and center for investors.

For a deeper dive into the sector-specific charts and visuals discussed, listeners are encouraged to check out the YouTube version of the episode.