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- [00:00]
A
It's usually right to assume that a trend in motion will stay in motion. But we also have evidence that it slowed a little bit to suggest that we'll get into a less steep rally. We don't like to anticipate the confirmation, we just like to react to it. And indeed we don't have that yet. The shorter term view is more bearish leaning for us right now. And it comes from the loss of momentum that we saw that was pretty distinct in Q4. If you zoom in on the NASDAQ 100 chart right now, if you use it a daily version, you'll see there's a triangle formation and the triangles are indeed neutral formations, but they show a market that's gotten less and less volatile. But it tends to proceed a pretty big spike in that volatility either to the upside or downside.
- [00:53]
B
You're watching Excess Returns, the channel that makes complex investing ideas simple enough to actually use where questions lead to better portfolios. Justin Carboneau is with me. I'm Matt Zigler and our guest today, the one and only founder and managing partner of Fairlead Strategies, Katie Stockton. Welcome back to Excess Returns.
- [01:10]
A
Thank you. Good to be with you.
- [01:12]
B
All right, so before we dig all the way into the charts, because we're going, we're going around the world with this one through capital markets. Before we dig in, can you give us a high level overview of just how you're reading this technical setup for 2026?
- [01:25]
A
Yeah, and listen, like our, our analysis is not exactly predictive. So we're not one of the strategists that goes out vocally with the year end price objective for the S&P 500. You know, it doesn't really operate that way. What we feel we do best is honestly identifying the prevailing trend and you know, to try to understand what, what the risk is. Right. Is risk greater to the upside or the downside? And to have key levels and indicators to watch to help manage that risk. Right. So, so that's what we concern ourselves with more. But that said, of course we do have opinions based on our methodology, so informed opinions. And as we come into this new year of 2026, the it's an uptrend right for the US equity market. So when we look at The S&P 500 and other major indices, you can make a strong case for the long term uptrend to continue. It's usually right to assume that a trend in motion will stay in motion, but we also have evidence that it slowed a little bit to suggest that we'll get into less steep rally than we've seen since that April low was established last year. So we are looking for the uptrend to persist but it be a bit more gradual in its slope and to have more volatility. I know that that seems to be consensus right now, but the indicators do generally support that where we'll have maybe more corrective phases and that in a way is opportunity. We don't see that necessarily as a.
- [03:02]
B
Negative and follow up question on that more volatility, less steep of an uptrend, but still in an uptrend. That basically implies the setup going into the year is to your point, a little bit more volatile but just still an advancing market. There's no reason not to think you're not seeing a bunch of toppy indicators as we come into the year.
- [03:24]
A
Yeah, I mean we have sell signals but very few are confirmed on a long term basis. And by that we are primarily looking at the demarc indicators which are designed to gauge trend exhaustion. We do have indications of trend exhaustion from some of the DMARC indicators, but we pay more attention to those when they are confirmed. And that can mean a couple of things in our work. It can mean that either we see enough of a loss of momentum to impact things like the stochastics on that timeframe that we're reviewing, or it can mean a qualifier from the DMARC indicators themselves. So we have the signals, we don't have confirmation. If we were to see confirmation it would be indeed a setback. But we don't like to anticipate the confirmation, we just like to react to it and indeed we don't have that yet.
- [04:16]
B
So this split between the long term feeling fairly bullish, the short term not necessarily feeling bearish, but feeling that there's some risk in here. Is that the divergence you're talking about here or is there something more to that?
- [04:29]
A
Yeah, the signals that I was just highlighting were more on the monthly charts. So these are longer term signals that we have our eyes on. The shorter term view is more bearish leaning for us right now. And it comes from the loss of momentum that we saw that was pretty distinct in Q4. You can see it in things like the weekly MACD indicator. You can see it in the downturns and overbought oversold metrics like the stochastic oscillator or even just breakdowns below the 50 day moving averages by some of the market's heavyweights that those all collectively send a bit more of a cautious message here. In the near term. And of course that corrective phase that we did see unfold, and we're putting the start of that around mid October, we don't think it's necessarily finished yet. We think that there is not enough evidence yet to suggest that we have an intermediate term entry point at hand. And we'd really like to see some of that evidence come up in our indicators. What we have now from the major indices is really more of a consolidation phase and neutral short term momentum. So call it maybe neutral to negative, but we'll be respectful of breakouts or breakdowns as they unfold. With that kind of neutral bias in mind, we think a breakdown, and by that I mean just a very short term breakdown for the S and P for the NASDAQ 100 is more likely than a breakout at this time, given that loss of intermediate term momentum. But again, we'll respect a breakout if it does occur. If you zoom in on the NASDAQ 100 chart right now, if you use it a daily version, you'll see there's a triangle formation. And the triangles are indeed neutral formations, but they show a market that's gotten less and less volatile. But it tends to proceed a pretty big spike in that volatility either to the upside or downside. So when you do see a breakout or breakdown, it does make sense to pay attention to that. So that's something that we're watching in the very near term because the NASDAQ 100 as you know, was a source of leadership really up until very recently. And that shift in leadership is another thing that has us more on the cautious near term side.
- [06:42]
B
So in that cautious near term perspective, how much of a move, how much would it take to negate the longer term bullish view?
- [06:52]
A
Well, we'd have to of course see the short term breakdowns is probably the first step towards that. But I would wait for confirmation on more than just the daily charts, the daily indicators, and look for it from some of the monthly indicators. So we would need to see some of those sell signals perhaps from the demarc indicators on the monthly charts. Confirmed. We would want to see some kind of downturn that's more decisive in the monthly stochastic oscillator is one. So there are several, I'd say metrics that we would be watching to that end. And it is fluid, as you can tell. It's one sort of thing leads to another thing. But as it stands, it just would be something that provides more of a, like a more gradual uptrend takeaway based on the way it's currently set up. But if we do see that kind of deterioration, that's another thing that of course will react to.
- [07:46]
B
So one of the things I always appreciate about your charts that you share, and especially as we highlight some of these are what I'll lovingly call the clouds. And I know for people who haven't seen these, I think what's so useful is they sort of give you a. They give you a range as opposed to a singular line or target of looking for where support might be, looking for where a trend line might be. Could you actually define what those clouds are, why you use them, why they're useful?
- [08:12]
A
Of course, yeah. They're called ichimoku more broadly. And yet the cloud is an accurate visual description, of course, of what they look like. The cloud itself, that's derived from not moving averages of price, which is pretty common for technical indicators, but rather midpoints of price. It creates sort of a moving gauge of not only the support and resistance levels, but also a read on the primary trend over that time frame. We love to use them on the weekly charts for a gauge of what is the primary long term trend and then also support or resistance. There's a unique forward looking element to it which suggests that there is either support going forward at a certain level or vice versa. And you can also analyze it like pertaining to the crossovers as well. You can see when a trend has lost some steam, it. It's not totally dissimilar from a MACD in that way, but maybe a weekly cloud model would look something like a monthly macd. So it gives you a sense of maybe one time horizon above what you're analyzing at that time. And the support and resistance levels, there's nuances there too. But the lower boundary of the cloud would be a support level that really needs to hold. And if it breaks, that's a pretty big deal. Whereas if you see a security come down to the upper boundary of the cloud and hold there, that's quite positive. In fact, I just looked at Micron as one example of a stock on its daily chart that came down to the cloud before this huge run up that it seen and held near the top of the cloud. And that was a positive indication. So there's a lot of nuanced ways of evaluating the cloud itself, but we find it a great read on support and resistance. That's more forgiving perhaps than things like the 200 day moving average, which is more of a precise point.
- [10:08]
B
Is that part of also why you're pairing the cloud typically with like a stochastic with a macd. Is that why you're using these in concert?
- [10:15]
A
Yeah, for sure. Just how you combine the indicators I think is where you're right or wrong or you know, shades thereof. And you know, we will always honor the prevailing trend when we're analyzing shorter term timeframes. So as an example, if we see an oversold condition within a long term uptrend, that's going to be, you know, higher conviction setup than the flip side of that. Right. An overbought condition. So we will, you know, always honor that prevailing trend which we can certainly get a read on from the cloud model and use in conjunction with the indicators which will give you buys and sells and these nice buy binary takeaways. It can be really helpful.
- [11:01]
B
Let's go back to the Nasdaq that triangle formation. Let's talk about this consolidation and basically how can you use a consolidation like this to inform positioning? Because sideways isn't a signal, but it's telling you something.
- [11:16]
A
Well, we, we wouldn't necessarily sell something if it's just going sideways, but we would if it breaks down. And so it's a matter of drawing your levels. How are you analyzing support and resistance with a triangle formation? Usually it's pretty obvious. It's a converging series of lower highs and higher lows and they culminate in this, you know, point that creates the triangle. So you have well defined trend line boundaries to watch for a triangle formation. I think for the NASDAQ 100, if I'm correct, it was around 25,700 on the upside, around 25,000 on the downside. So it's a pretty, pretty tight narrow range at this point because it's converged so much. It wouldn't take much for it to break out or break down is the point there. So we have these well defined levels to watch. And the levels can also be derived from moving averages. They can be derived from the cloud. In fact, the cloud is bolstering that bottom boundary of the triangle formation. So we have multiple ways to view it. So you're about to make a trade based on a friend's text, but which u do you listen to is it?
- [12:26]
C
We could buy a house in Tulum.
- [12:30]
A
Get optioning those options. We could lose everything. Or let's do a little research, get your head in the trade and make the investment decision that's right for you. Learn more@finra.org TradeSmart.
- [12:49]
B
Do you want to just make a comment too on the Nasdaq really Quick in what you're seeing, not just in the triangle, but how you're interpreting the stochastic and the macd. This is on the NASDAQ weekly chart here.
- [13:00]
A
Yeah, on the weekly chart. I mean listen, we've had more of a deterioration as mentioned in regards to that intermediate term loss of momentum and that has impacted the stochastics in a more bearish fashion. We're seeing it also from high growth segments of the market. Arc K had a downturn in the stochastics as one and you know, I, I think it's somewhat concerning for the near term picture and, and we do reference those weekly stochastics to try to help time our entries. So at a very minimum, we want something that looks more promising.
- [13:36]
C
Let's get a little bit more into some specific names. Like one of the things I think we're seeing is some divergence between some of these large cap technology companies. I mean they're always jockeying for leadership and strength and it seems like maybe like just a year ago everyone was writing off Google and now Alphabet and you know, here we are. That might be one of the better performers recently. So can you walk us through some of these large cap tech positions and what you're seeing in some of these specifically? And then do you think, is there anything in the overall divergence pattern that is similar to past periods that you've seen or should there be any concern about tech's leadership sort of overall here?
- [14:16]
A
Yeah, I do think, you know, there's been a shift that's somewhat meaningful on the charts. If you look at a technology sector benchmark like XLK, that's an ETF or even the NASDAQ 100 relative to the S&P 500, you do see a distinct downtick in relative momentum. So what was a strong uptrend through most of the cyclical up move off the April low has become certainly less than that. It's in a corrective mode. Whether that's a lasting correction or not, we don't know of course. But I would say that it looks still like we need more work on the downside to get to that place where it looks like a high conviction re entry point for tech in relative terms. And tech of course is usually the source of primary upside leadership. So we do want to have the tech sector exhibiting upside momentum relative to the benchmarks and that tends to be a strong tape. We still have decent upside momentum from semiconductor stocks and that's something that I have my eye on as well. But there are some signs of minor upside exhaustion there too. So a little bit tenuous in terms of that relative strength picture near term. But again, just like any of these longer term uptrends and absolute term, we're going to make the assumption that tech will resume its trend of upside leadership at some point. Right. Once we have more evidence of that intermediate term low. And pertaining to the mega cap complex, it has seen some more dispersion lately than we were accustomed to for a few months there at least in 2025. I had to reset my year now. And so with that, you know, relative performance being pretty tight for a while, it's what we became accustomed to and you could attribute it to a lot of things, but investors were either investing passively, which was a great approach for most of the year, or perhaps treating the mega caps as like a bucket. Right. Like I just want to own the Mag 7. These are the biggest companies or the strongest companies perhaps, and their perception. So that has broken up to some degree really started back when Nvidia stalled. And so we have sort of downward action of late in Nvidia and in Microsoft and Meta as well. Whereas we've had some divergence from Alphabet, which has been pretty strong, from Apple, which was strong really until the last few days or so. So those divergences and Amazon even seems like it's got a short term breakout underway here. So you've seen now these stocks diverge from one another. And what I wonder if that means that they're being treated as individual companies in the way that they probably should be. Right. Investors are perhaps being a bit more stringent on the fundamental outlook as they analyze these companies. They're not necessarily treating them as a basket or as a collective investment anymore. I don't think that's a bearish takeaway or a bullish takeaway. I just think it's a change in the character and now it's part and parcel with the downtick in the relative performance for the whole group. So I think it's interesting, I don't think there's a big market read on that front, except maybe it would suggest that we have a shift from a more passive sort of year to something that does warrant more, more action, more activity in terms of that volatility and pickup.
- [17:55]
C
If, if you were to try to pinpoint of these large cap tech names, like the chart that looks the best, the strongest versus the one that looks the weakest, what would you, what would you focus in on here?
- [18:07]
A
Yeah, I mean, I, I want to honor the stocks that have the best upside Momentum and that probably would be Alphabet within the whole complex. I don't think Alphabet is at the best entry point, but it would be one that I'd certainly be interested in adding exposure to once we have more positive short term catalysts. I am interested in this move in Amazon today as potentially being not a short term catalyst, but I'd like to see it hold for a day or two before acting on that. So we watch them really closely. I'm less inclined to buy into weakness already for the likes of Microsoft and Meta, which does look lower to me. So not, not rushing into ad exposure. Also keeping in mind our top down views, but I do think we'll have the opportunity of course to benefit from more upside from this complex after we get more corrective action.
- [19:02]
C
I'd be willing to bet probably for the last like five to maybe even 10 years. At the beginning of the year, most strategists were saying this is the year the rally is going to broaden out. It's going to be a better year for small caps and mid caps. Not that you were saying that, but you know, a lot of people have made that argument all throughout the last, you know, few years when it comes to the markets and you know, it's been just the opposite. Concentration was, you know, pretty focused. But I mean, maybe this is the year where the Russell 2000 sort of see some, some better performance. So what are the charts telling you here?
- [19:36]
A
Yeah, I don't know if we wish for that or not really. And it's interesting. The breadth has been pretty strong actually behind the market. Even for much of 2025. You had good participation, but what you had was that concentrated leadership yet again for at least several months of the year. It wasn't quite as dramatic as what we saw at times in 2023 or 2024. So maybe that cycle is shifting gradually away from that sort of concentrated leadership. But I think it's too early to say that with confidence. We'll see if these names continue to lose relative strength to a greater degree. That would be something that of course, that would suggest that we'll see a broader tape in terms of leadership, not just participation. And that's where our portfolios are certainly impacted by that. Right. In regards to the small cap caps versus the large caps, we did see some action that was arguably more neutral overall in relative strength terms. So some stabilization in the small cap ratios versus the large cap proxies. And even I looked at the Russell 2000 versus the S&P 500 today and that ratio's 200 day moving average just ticked up. And I mean it's been pointing down for a long, long time. So that does reflect what we've seen over the past few months, you know, in terms of rotations. So a little bit better action would be indicated by that upturn. And indeed we saw that at times in 2025. I would say again, it's a little bit early to suggest it's a lasting and actionable turnaround, but at least a maybe a more neutral takeaway for that relative strength overall.
- [21:32]
C
And what about. And it kind of plays into this a little bit, but value and growth. So on this chart you have, you know, large cap growth in value and small cap growth and value. And I'll let you talk to I think what the, what the chart is sort of saying here.
- [21:47]
A
Yeah, I mean it's great to see these long term uptrends favoring growth. We want to generally stay on the right side of those long term uptrends. At times, of course we see corrective moves and that's what we're in the midst of in our opinion is that we have a phase of outperformance likely from value that should continue over both market cap spectrums. And we say that simply because of the momentum behind those ratios. That's more short to intermediate term pointing lower or having deteriorated. But the trends are very clear. The long term uptrends favoring growth. I mean that's just in line with what we said about the technology sector as the primary source of upside leadership and a strong tape. You can say the same of course about the growth complex here. And we have a lot of growth stocks to choose from here in the US which is great. So we have a lot of really interesting long term bullish setups on the charts. Especially when you look at the weekly and monthly timeframes. You can find even not just well established long term multi year uptrends, but also turnarounds, turnarounds that manifested themselves on the charts over the last year or year and a half.
- [23:03]
C
And what about when we come outside of price performance and we're looking at things like breadth like the NYSE cumulative advanced decline line. And when you're looking at that over a multi year period, what is that indicating at this point?
- [23:17]
A
Yeah, and as I mentioned, the breadth had been pretty strong for most of the year in 2025. And what we look at that I could say cumulative measure of breadth or participation. It runs a total of advancers and decliners on the NYSE each day. And that running total can Be informational when it diverges with the major indices. Right. So when you see perhaps a major indices struggling and then breath is doing better, that would be a positive indication. Whereas if breath starts to pull back from resistance and The S&P 500 is breaking out, well that will give you the more negative takeaway. Breath to us isn't a great market timing device, but it will give you a sense of the legs beneath the rally, if there is a rally and you know when you're seeing a breakdown to see if there's broad participation on that breakdown. So we use it in conjunction with price analysis. We're always going to give more weight to the price trends because we think that's what we're trafficking in. Right. We want to make sure we have those trends on our side first. But it can be informational and right now I'd say the takeaway is really more neutral than anything else. We don't have any big divergences to speak of there, but a bit of a tiring out maybe in terms of that broad participation. So we'll see how it unfolds, but nothing major to take away from it.
- [24:44]
C
Okay. And one of the other non price indexes that you had in your presentation was this fear and greed index and you show a 10 day moving average which is pretty volatile. It looks like a small cap biotech company, you know, char maybe to some extent. But you know, when you look at something like this, how would you, how would investors sort of interpret this type of volatility and how do you kind of think of it when you see like at highs and lows?
- [25:11]
A
So that 10 day moving average is a smoothed out version of this sentiment data which we consider to be transactional sentiment data. So either you can go around and you can ask people how they feel about the market and that can be information, but we're more inclined to look at the way they're positioning. Right. So these are inputs, I think there's seven inputs that CNN has collected for this index and they include things like junk bond demand and gold prices and so some intermarket inputs there. But also put calls, things that make a lot of sense as to how bearish or bullish people are positioned. And taken together it can give you this nice aggregated view as to what the temperature is in terms of market sentiment. It is an oscillator as you can see, and it's quite choppy. So that's why we like to smooth out the data. And when you see the index go below 25% that's usually a positive indication, but it can at times take time for that sentiment reading to manifest itself in a real intermediate term entry. Kind of. I think about it as creating a backdrop for a tradable low as opposed to actually triggering that tradable low, because it can be pretty dicey to just add exposure. When you see a 25% sub reading, you want to see that reading then give way to an uptick both in that index and then also in the momentum gauges that you track. So we like to use it, of course, in conjunction with the momentum indicators and price action. And we saw a pretty good upturn. So we did see something that at least we think was indicative of the B corrective wave corrections. For those of you that don't know, Elliott wave analysis tend to unfold in this ABC fashion where there's an initial down move, a relief rally, which is the B wave, and then the C down move, which is often the worst one. And so we have, you know, pretty good confidence that we have the B wave having already either, you know, run its course or still perhaps underway for certain segments of the market. And that's what that sentiment data did help trigger. So we saw it as like an enhanced or an enhancement of the short term oversold conditions. Now, we would be discouraged, of course, by a downturn, even if it occurred below the overbought threshold in the index, which is around 75%, because that would suggest that, you know, we're in store for a retest. And a retest is something that's really common and that's both in price terms and for a lot of these indicators or market internal measures that we're tracking too, where you get like an initial up move and then a return to that level or a retest of a support level. And we see that all the time from stocks. Right. Where we had a great up move. I'm trying to think of some good examples of down trending stocks, like maybe a Comcast, where you get that initial relief rally and then you start to see the stochastics in the short term, momentum gauges roll. That usually is the start of a retest. And the retest can actually be the better entry, that second downdraft or the subsequent downdraft that then gives way to support discovery. That can be a great entry point.
- [28:41]
C
Yeah, it's almost like those sellers need to be like exhausted. Right. It's like you can't. So and then, and then you kind of come in. And so I think the overall point that you're making here, which Is, you know, a lot of times you see these types of non price based indicators, but you're really, you know, for you and for fairly it's really looking for that price based indicator to confirm either the up move or maybe further room to the downside.
- [29:04]
A
Yeah. And that the retest actually gives more time for the indicators, most of which are lagging by nature because they're using moving averages. It gives it more time to affirm that move and then maybe you'll see a higher low and that higher low gives you even more confidence. We're all about waiting for confirmation, whether it means an active buy signal or something different and more conservative than, you know, just buying into that sort of initial downdraft. Even when we have perhaps a demarc signal that would suggest it's overdone. We really like to see a retest or some improvement in the momentum gauges, especially if we're talking about a substantial position more than just a short term opportunistic trade.
- [29:50]
B
And inside of this, this also says sentiment as we come into this year back to the Nasdaq and the leadership consolidation you pointing out might not be the greatest entry point. Even on a chart you like. We just don't have any inflection points yet or confirming data to say, hey, do something about this.
- [30:08]
A
Yeah, I would say there's not enough in the in terms of positive catalysts, but what we'd like to see are either breakouts and that would be a breakout in this case from the triangle for the NASDAQ 100 or those stochastic upturns. This can be actionable as well. Those are two of our primary positive catalysts that we're out there looking for. And there's others as well. But in general, when we're scrolling through charts, we're looking for setups that are favorable. That is something that we're looking for. And support discovery is always a good thing as well. So we don't have a lot of that right now. An example of where we did see it would be Bitcoin. Bitcoin had some support discovery following its big corrective phase or downdraft. And that support discovery saw improvement in the short term. And even the intermediate term indicators kind of showed a reaction to the intermediate term oversold condition that had returned. And then we saw the short term gauges turn up enough that of course it then warranted a bullish short term outlook, got the breakout above the 50 day as further confirmation. That's the type of action that we're often looking forward to. Suggest a downdraft is over. Triangles are different. Right. There's always different setups out there to be adapting to. And we do have to, of course, be very adaptive in our analysis. But when we see those catalysts, we are more than happy to act on them. And we're even happy to buy stocks into strength or buy commodities into their uptrends as long as the momentum gauges warranted. Those can be harder entries because you don't have that new catalyst, you don't have that pullback to suggest. It's, you know, a great entry, but it's often the right thing to do. Think about gold and silver, the precious metals complex and the moves that we've seen there. They have been almost uninterrupted in their uptrend. So you almost had to be willing to just buy, you know, without regard to, you know, seeking these positive technical catalysts perhaps, and is willing to buy the momentum.
- [32:19]
B
Let's jump into sectors. You always have a fascinating view on sort of your underweights, overweights, how you approach the sectoral level of the S and P. Do you want to take us through, take us on a tour of the sectors. What are you seeing? What do you like, what are you flagging?
- [32:34]
A
Yeah, I mean, so we evaluate the 11 economic sectors of the S&P 500. So these are cap weighted sectors. And that's an important thing to acknowledge because we're getting heavy exposure through these indexes to the mega caps especially, but also just some heavyweights in other areas like healthcare. So we are in a way trusting that the market's rewarding these big companies for their good fundamentals. Right. So we're trusting the market in that regard. One of the best performing sectors last year and still strong is communication services. And you can imagine that there's some heavyweights in there that are contributing like Alphabet. And so we were still keen on that sector from sort of an intermediate and long term relative strength perspective. But we're also pretty open minded to ones that we would consider to be more turnaround type setups like healthcare and even also financials. Financials came off of an intermediate term oversold low. So those have sort of a promising setup in terms of their relative strength. Not nearly as decisive as perhaps the healthcare rotation has been. We've seen breakouts unfold in industrials and certain areas within materials as well. So we're interested in also seeking the positive catalysts that have arisen among the sectors in their relative performance. The tech sector is not our favorite right now, as you've heard in terms of the relative performance having faltered. So it's been an uptrend. And our etf, the fairly tactical sector ETF still owns technology because it's rewarding that long term uptrend and ignoring what it's treating as the noise of the short term moves. But from a shorter term perspective it does seem like it's going to remain out of favor. Right. So if we had to reconcile our time frames here and we're big believers in long term investing, if you can be a long term investor, it is good to maybe ignore some of these corrective moves and just hold through those as long as you don't see that long term deterioration. So I'd make that clear as well. Our relative strength weightings that we recommend in our weekly research to the Fairlead strategy subscribers can actually be misaligned with our TAC ETF just because of the timeframe. But right now we do have that alignment certainly for communication services. As one example.
- [35:09]
B
Talk to me about some of the ones that have been, I'm just going to call it painfully sideways and maybe differentiate between what you See in Healthcare vs Energy or Materials because the sectors tell a very different story about stock performance over the last year and what it looks like coming into 2026.
- [35:27]
A
Well, I think energy is a good topic because it is so interesting right now we have some geopolitics, right, that the market's navigating and the energy sector maintained a pretty strong downtrend in relative strength terms for much of 2025. So we would see, you know, a couple of weeks at a time where it would resurface and pick up its head. But in general that downtrend was really quite strong. And so it's been right to be underweight, it's been right to be out of the sector for the tack etf. But as soon as crude oil prices turn the corner, meaning that they at least break out above their 50 day moving average, I think we'll have a lot of really interesting opportunities there. And even a relative trend of underperformance doesn't mean that there's not some really interesting setups within the sector. And in absolute terms, of course we'd always be seeking those positive setups. But we noticed recently that some of the oil services names like SLB for one, had what looked like a long term turnaround in place. So maybe frustrating in terms of the longer term investors waiting for that turnaround, but it seems like turnarounds are starting to unfold within the energy complex. So we wouldn't be terribly surprised to see it emerge as at least maybe an upside leader within the first half and maybe that's all it gets. But we are kind of interested, intrigued by some of the action in some of the stocks that comprise the energy sector. But painfully sideways, I mean, I would say the REIT sector or real estate has been one that would be not even painfully sideways, I guess in absolute terms, but in relative terms. That sort of relative trend of underperformance has been really very persistent and that's why indeed they are range bound as opposed to uptrending in general. But now here also we are starting to see some setups within the real estate sector that are kind of intriguing and maybe suggest that that relative performance is going to also improve. And you might associate that with something like a down trending treasury yield environment. Right. So something that's interest rate sensitive might do better when yields are coming in. So. So I think we're seeing some transitions underway. It's a little bit early for all of them to suggests these are decisive turnarounds, but some indications that we should see some relative strength shifts that are pretty meaningful sometime in the first half here also.
- [38:09]
B
And because you mention it, relative to yields, it's always interesting to watch them. Anything about the utilities? I think that relative chart's been really interesting. Whether or not we're topping out or bottoming here. How do you feel?
- [38:21]
A
I feel like it's more exhibiting the bottoming characteristics. It feels like we've got one of those retests that's unfolded and as mentioned, the retest can be great entry points. So in relative terms, I think it's compelling and could benefit from that same influence as real estate. In terms of treasury yields coming in, we would honor the trading range in treasury yields right now, but the longer term gauges do still point lower. So for the 10 year yields, I'd say that more likely than not we'll see them come in more decisively below 4%, but really only as part of a bigger counter trend move within what we think was a secular shift higher for yields. So it's another situation in which we have to reconcile the timeframes that we're focused on. But I wouldn't be surprised to see yields come in also here in the first half. And that of course can benefit utilities, REITs, even some of the consumer staples which have been really, really beaten up.
- [39:29]
B
Let's zoom out just for tack, because you're using all of this awareness to guide the strategy for the etf. You want to just Go over that strategy real quick and then we'll follow up with some more questions on it.
- [39:40]
A
Of course. Yeah. TAC is 100% systematic, so it's very much aligned with our methodology. But we're letting the market speak to us rather than telling the market, you know, what we think. And I think that's a responsible way to go about building a portfolio. Tech is very long term and focused in that it's using just the monthly bar charts to derive the signals that we use. And therein it's really only rebalancing when there are long term shifts that warrant it. So it won't rebalance when there's a corrective phase underway, but it will kick a sector out if it's not acting well in terms of those long term gauges. And right now it holds six sector positions. And the other 25% exposure that we have is in alternative assets that we see as our risk off component. So not only is the TAC ETF a sector rotation fund that is active and long term, it's also using asset allocation to manage risk. So it really pays a lot of attention to limiting the drawdowns. And that's not been necessarily that important in the past two years, two and a half years or so. But it's certainly important when you do see those major bear cycles. And we had one of those, in fact, when we launched the fund in 22, and you could see how the relative performance can really shine in that type of environment because we had that year energy was really the only sector substantially in the green. And sure enough, TAC only held energy for quite a long time. So we are willing to move even fully risk off, if you will, per those other assets which include short term Treasuries, long term Treasuries and gold. And we do that again to limit those drawdowns. But right now it's honoring the uptrend. It has, you know, come in a little bit in terms of the, you know, going from a full exposure 100% or close to it to now a 75% equity exposure. And that has been simply in response to the model which is then, you know, derived from all of these longer term trend following inputs. And it's just a dynamic way to approach the markets.
- [41:58]
C
Where, where does this fit into an investor's portfolio? Like is this, like take a 60, 40, is this something that somebody might say, you know, I want to take 10% of the equity exposure that I want to have maybe slightly reduced or you know, much lower possible drawdowns on and you know, allocate like a 10% slug of their portfolio to that or how are you finding that advisors and investors are sort of using this in the overall allocation, would you say?
- [42:25]
A
Yeah, I think if you think in terms of the goals of the fundamental being more an outcome that looks like a hedged equity type of product, that's where I'm finding advisors are fitting it in. But it's dynamic and it's active. So in a way it doesn't fit cleanly into that either equity sleeve or fixed income sleeve because it has a gold component. You know that at, you know, any given year it may have, you know, 75% plus equity exposure and very little alternative assets and vice versa. So it is dynamic truly. And the average turnover is about 100% going back to the history of that we back tested. So it's a tough one to fit into a bucket. But if you think about it as, you know, a desired outcome. Right. You want to participate in the uptrend and be in the best sectors of the market. By the nature of TAC being equal weight the sectors, it will always have a smaller position in the technology sector than the major indices. So it's a great fund to balance out what is often a very tech heavy portfolio. We've noticed in our own research that you know, the clients that we speak to are really generally interested in technology stocks primarily. And because of that they get very heavy these, you know, higher beta positions and they need a bit of a ballast to their overall portfolio. So I think of TAC as that exactly sort of great ballast for a tech heavy equity portfolio. And what we say it serves as a core, something that you shouldn't have to worry about and a core around which when the market is firing on all cylinders, you can beef up that passive or that tech heavy exposure and that that be the more opportunistic piece.
- [44:19]
B
And very important I think to fit it in in the hedged equity component because you're not swinging for the fences on the upside. Proverbially here it's try to have a little bit less downside when it gets rocky.
- [44:31]
A
Yeah. But we also do want to leverage in a way the sectors that are doing the best. Especially in environments when it's not tech.
- [44:40]
B
The like the energy story you just told the most compelling things you have in the.
- [44:45]
A
Yeah, yeah. So that's probably the best example. But if you look at real estate, which we don't own right now, the position size within The S&P 500 is like 2%. It has like a 2% weighting. So when you do see the rotation and it is substantial, meaning, you know, more than just a month or two, well that's, that's something that we want to be there to take advantage of. So and we, we do think that tech, especially this year as we see this downtick in the relative performance, were so accustomed recently to it being, you know, just such the upside leader. But in reality there's probably some great opportunities outside of technology out there. So that's what we're excited to leverage through tack.
- [45:30]
B
All right, I want to take us now to international markets. You might even help settle an investment committee debate I was having earlier today before you recorded talk to us about what's going on basically global X us. And then I especially want to hear what you're thinking about emerging markets.
- [45:47]
A
Yeah, I mean we've seen great action from both. Some of the proxies that I've looked at recently have accelerated to new highs and there is nothing bearish about new highs. We feel that the relative performance shift that we saw at times in 25, kind of like the small cap comparison even, is compelling. And I think it does warrant more attention perhaps than we would have had in previous years. So the relative performance shift we think is potentially the start of something more meaningful at least warrants a more balanced position perhaps than advisors were holding before. Doesn't mean it should be a bigger position than you have in US Equities. We're still big believers in US equities and their long term trend of outperformance. But I do think there's some great opportunities, especially when you drill into the country level work like the us There's a lot of overbought indications as a function of the positive momentum, mind you. So we don't have a lot of confirmed sell signals, but we also don't have those new catalysts necessarily to warrant adding exposure. Now. It's also pretty rare for these international proxies whether you're using IFA countries like or if ETF or emerging markets ETFs like EEM perhaps, you know, they're, they're going to probably pull back if the US equity market pulls back. So if you do think that the equity market here will pull back, you probably should wait to add that exposure external to the US as well. But we do find some great setups and we, we have been very much on board with the long term turnaround in China for one. You can see that in most of the proxies there. And you know, again, that's something that it carries some risk we think here perhaps in the near term, depending what you're looking at, if it more of like an FXI type of proxy as opposed to something that's more oversold than that, but a lot of opportunity. I think the relative performance should be at least balanced with the US if not better at times and for the areas of the market or for the markets that have broken out to new highs that we see as a, as an intermediate term positive catalyst.
- [48:07]
C
So Gold had a phenomenal run last year. Maybe one of its best years ever I think possibly. What is the chart sort of clearly it's above its moving, moving averages. But what do you see sort of in the chart here?
- [48:20]
A
Yeah, I mean it's been working its way higher. This not, not uninterrupted, that's more silver but a very steep and strong uptrend. It had a couple of big pauses and those pauses did refresh trend and Gold even held the cloud based support that we were watching on the daily chart through that sort of earlier in the year consolidation pattern. So it's been acting really well. It continues to do so and the corrective phases have served to refresh it. So we're very much on board with holding gold positions and even adding to them where you don't have any overbought indications that are being confirmed. Silver has also been, you know, more than participating, exhibiting upside leadership, outperforming gold. So there's been great opportunity there as well. The, the more near term pickup in day to day volatility is usually something that's more of a setback short term than it is an opportunity. So we think that there will be some more consolidation perhaps for Silver as it needs to maybe digest some of those gains. But, but we're on board with the uptrends and it's been great to have this as an alternative asset class. TAC has owned Gold all year and more as an alternative to equities, but certainly benefiting from that long term uptrend.
- [49:43]
C
Let's just take the opportunity. That difference between the Gold move that's been super strong but a little bit more or a lot more consistent relative to Silver. Like when you see two very different or distinct outcomes or charts like that where you have a huge pop versus this sustained move higher. Like what do you, what is the lesson you think there that investors should be paying attention to is the more consistent move from gold? Is that built on maybe better? I'll say fundamentals even though gold really, you know what I'm saying, like how do you kind of view that when you get that?
- [50:20]
A
Well, I, I almost think of gold is to silver as bitcoin is to ether, you know, like a cousin. And so you can get a higher beta type of exposure through these cousins, but maybe a bit more opportunistic. Right. But silver, you could argue, has different influences than gold, as does ether. Really. That's as much as they're part of the same asset class. They do have their own fundamental characteristics, of course, and that's something that does make a difference. I think we always believe that the trends are driven by fundamentals and we're just trying to understand them using technicals and identify opportunities. And silver has use cases that are much different than gold. Right. So I think that's something everybody should be aware of as they're trafficking in these precious metals. Platinum, palladium look pretty good to me too as longer term turnaround. So there's a case to be made even beyond the initial two we discussed. But I think it's more understanding the fundamentals, knowing the volatility behind that asset that you're, you know, owning.
- [51:34]
B
I know I have to have some talks with some cousins of mine after this and say, listen, I'm gold in this relationship. You got that silver golden. Talk to me a little bit about. I feel like for the last year, certainly since the tariff tantrum, not that everybody's become an armchair FX expert, but we're talking about FX a lot. Again, we're talking about FX and the movements and what they're infecting different parts of our portfolios. What's going on with the dollar index? You have a really interesting chart on this.
- [52:03]
A
Yeah, I do think it's interesting. We have had a cyclical down move in the dollar, especially against the euro, which is sort of the primary component of that dollar index, that corrective phase, if you want to call it that, took it into this multi decade uptrend channel or sort of a secular uptrend line that we.
- [52:27]
B
And it took it there hard and fast. Right. This was a pretty. You don't see the dollar move like this all the time. Right.
- [52:34]
A
That's for sure. It was pretty dramatic. But you know, the drama usually comes on the upside, not the downside. But indeed it held up near that trendline support and then went through a series of retests and we think we're in the midst of one right now, so have more of a lower near term bias, but a sense that this trendline support is pretty meaningful and that that would suggest that we see in at least the first few months of this new year dollar that can work its way higher and continue to move forward in this newfound strengthening trend. So more, more constructive action for the dollar. But, and that would be more of a long term takeaway and it showed a response to what was a dollar oversold condition on the monthly chart. So a very long term oversold condition was logged with that cyclical down move.
- [53:27]
B
How much are you paying attention to that dollar chart relative to other things? I'm thinking of developed international playing into decisions.
- [53:34]
A
Yeah, not for us. We like to look at things more in a vacuum and let other people try to draw a conclusion based on that. We find that that is a great unbiased approach that we can offer in a way because sometimes these trends will make sense from a macro perspective, other times they won't and they break up. And I think there's information in that as well. Right when they kind of make sense and okay, that's what we would expect and maybe when it's not doing what you would propose from the historical correlations, perhaps. So we, we do really look at them in a vacuum. But of course any investor in international market should have an understanding of, you know, the currency or FX implications.
- [54:20]
B
I know we talked about it earlier, I do want to come back to this because, because you have a chart on it that I think is really great here. So the digital dollar, everybody's favorite digital gold, Bitcoin has been much like the dollar, really interesting on a technical perspective. You break down the bitcoin chart for us as you see this.
- [54:39]
A
Yeah, of course, I mean as mentioned earlier, we've seen that kind of short term stabilization and breakout above the 50 day. But to put it in a long term context, we've seen Bitcoin basically stair a step higher for a while now. And that uptrend with its volatility that it's carried has been generally a great opportunity for investors to take advantage of Bitcoin. And so we, we track it, we like to take advantage of that volatility through the use of these indicators. And the indicators right now do point higher on the short and intermediate term timeframes, but we have a downtick in all of the long term indicators. So the monthly gauges have rolled over to such a degree that it would suggest that maybe this is just a short term relief rally as opposed to a resumption of that long term trend. Even the cloud model, the weekly cloud model that we track so closely, which was a great gauge of support for Bitcoin on the most Recent downdraft and has historically been very relevant. So we think we have a great tool there. But you know, the, the cloud has started to kind of roll over as well to suggest that this uptrend is maybe changing character, maybe it's moving into a more gradual uptrend channel or a trading range or something worse than that. Right. So where it becomes something worse is if we do see a meaningful cloud breakdown, that would be certainly one thing and just more weighted the evidence to suggest that another peak is unfolding on an intermediate term basis.
- [56:22]
B
So we're all old enough to remember when Bitcoin was just supposed to track growthiest of growth stocks. And it doesn't feel like that's happening right now. Is that significant? Am I off base?
- [56:33]
A
Well, you know, it does maintain oftentimes a strong correlation to the NASDAQ 100 that's been widely publicized. But those correlations fluctuate just like you can see in other asset classes and their relationships. The correlations over time can be historically high, but move almost in their own cycles. So we wouldn't depend on that correlation. It would be surprising to see the equity market pull back dramatically without a retest underway. In the cryptocurrency market, we don't expect a big divergence for any duration between the two. But if you think about certain scenarios that might influence their near term action. Right. Perhaps it's Venezuela, maybe you see the relief rally in Bitcoin almost as a function of heightened risk for equities. So there's, there's definitely scenarios in which you can see that correlation perhaps go down. But I would think it's, it's temporary. Right. So we never really depend on the correlations, but at times they can certainly be informational.
- [57:43]
B
If you were thinking about boiling it all down, what are the most important things that you're paying attention to basically coming into 2026? Again, not to be predictive, assess for it.
- [57:54]
A
Dr. Katie yeah, we've covered a lot of it. I think that this is almost the stuff of what we deliver in our quarterly market outlook call to our clients. We cover all of these charts and then some. We give a lot of ideas. And what we've found is that it's just a process, a methodology. It rarely changes. There's no, you know, new market internal measure that we're tracking that we're going to give extra weight to. I know that tends to be often how it operates for macroeconomists. There's something that really makes, you know, the difference now. Right. And it can be totally different in six months. We go back to the same old stuff and it's that process that is systematic and maybe a little bit less interesting and more mathematical, but definitely a process that can help manage risk and identify opportunities. So indeed we're looking at the top down inputs, the S&P 500. We look at the volatility index as one perhaps that we didn't discuss. We'll look at other market internals so those market sentiment, data breadth, et cetera. But really giving the most weight to the price action on the index level and then with that in mind trying to discover opportunities on the sector level, on the stock level and then in alternative asset classes. As long as something has a price and some liquidity, you can use the same tools across the board, not only across these asset classes but also across time horizons. So as long as we have a chart we can have an opinion. And I know that's not a totally straight answer, but it's kind of all of what we just discussed.
- [59:37]
B
Okay, so if I flash forward it's now 2027. You're going to come back before then we'll talk about lots of updates I am sure. But if it's 2027 and we look, give me one thing that would be the. It almost feels like a no brainer and it might just be we we get a halfway decent growth number on stocks this year with some sideways volatility and something that would be a complete. Wow, I can't believe that happened. You know, energy sector totally dominates or something. Again, give me an example of an each a no brainer surprise. A complete.
- [60:10]
A
You would be shocked. That's a tough question. There's nothing that is a no brainer but we always would honor things that are trending higher, these long term uptrends. So I would focus on stocks that have those long term uptrends in place. It doesn't mean you won't see corrections along the way, but the market rewards the winning stocks. So I would go to those winners and look for opportunities as time progresses. It could be Alphabet, it could be Citigroup or you know, Goldman Sachs. These are all names that have had just such good long term momentum. It could be Eli Lilly. So we like the idea of buying uptrending stocks when you have those positive catalysts in terms of something, you know, external to us equities. I do believe in the long term trend in bitcoin so I believe in that kind of more secular uptrend that it has established probably with a lot of volatility on the way. But 2027, if you put that in my mind, I would be very interested in adding exposure with that kind of time horizon to Bitcoin.
- [61:22]
B
Katie, if people want to learn more, if they want to get some of these outlooks from you, where should we send them to find your information?
- [61:28]
A
On the Internet, of course, to our website is the simplest way to go about it. We have an info form on there. You can fill out your contact info and receive a free trial of the research. So we offer free trials for a month. We have a very broad suite of research. And then we have the ETF. So the ETF has a website of its own. FairLeadStrategies.com gets you to the research and FairLeadFunds.com gets you to more information on tech.
- [61:56]
B
Fantastic. Katie, I want to thank you for joining us. It's always great when you come on, and I always feel like I walk away with such a great overview of what's moving in every space. So if nothing else, I think every investor needs to take this exercise to just catch up with everything that's going on. Because the world's a little crazy out there, I think.
- [62:14]
A
Yeah, it sure is. I appreciate that.
- [62:17]
B
All right, you're watching Excess Returns. Check out Katie's stuff online. Look in the comments like subscribe all the things below. We'll see you soon.
- [62:25]
C
Thank you for tuning in to this episode. If you found this discussion interesting and valuable, please subscribe on your favorite audio platform or on YouTube. You can also follow all the podcasts in the Excess Returns network at excessreturnspod. Com. If you have any feedback or questions, you can contact us at excessreturnspod. @gmail.com.
- [62:43]
B
No information on this podcast should be construed as investment advice. Securities discussed in the podcast may be holdings of the firms of the hosts or their clients.