Market Rotation Pressures Stocks as Technical Momentum Weakens

Remy: On this morning, Monday morning, we are looking at the major U.S. stock averages in the red. While Friday was a rebound day for the markets after a rotation out of tech dragged the S&P 500 and Nasdaq lower in the previous trading sessions. Now, the Dow did hit 50,000 for the first time ever after a 2.5% climb last week. And we are looking at the Dow trying to cling on to that level. Well, we've seen volatility in commodities, with gold topping $5,500 and silver racing gains over the last month, and Bitcoin had its worst day since the FTX crash on Thursday. But in New York morning trade, we are looking at it hovering right below the $70,000 level. Well joining me this morning to weigh in is Katie Stockton, founder and managing partner for Fairlead Strategies. Katie good morning and thank you so much for joining me. While we are looking at the equity averages in the red this morning, the S&P 500 is showing a double digit earnings growth, but technical traders often say price is truth. So tell me what we're seeing right now and some of that rotation.

Katie: Yeah, we have seen very significant rotation in the market year to date, meaning for 2026. And the resulting impact on the major indices like the S&P 500 is essentially consolidation. So we call it backing and filling. When the market's going up and down and up and down, but not making a whole lot of progress one way or the other. what that reflects from a technical perspective is a loss of momentum.

Short term momentum is somewhat weak. Intermediate term momentum is very weak and actually has been weakening since last October. So I would say the market's been remarkably strong in light of that. But it has us scrutinizing the near-term action because we did see a short term breakdown from the Nasdaq 100 last week And we're watching the S&P 500 closely relative to support because if it were to follow suit, that would obviously be a risk metric for us.

Remy: Yeah. And Katie, I want to expand on this. The S&P 500 has been bouncing between the psychological $6,800 AND $7,000levels. And in New York morning trade, we are looking at it around $6,920. But for retail investors looking at their 401K, what would you say is the line in the sand on the chart. And if we do break below recent support, does that technical damage suggest a deeper correction.

Katie: Well it would. And the support that we're watching for the S&P 500 is at $6,730 thereabouts. And it's defined by one of our models that's been pretty reliable as an intermediate term trend indicator. But I want to emphasize that a correction is not necessarily a bearish reversal. So for those that are thinking longer term, especially in a 401K or a similar retirement product, this doesn't change much, frankly, because the long term uptrend is still intact. Even if we were to see 10% plus correction, well, that wouldn't necessarily mean that you want to reduce exposure meaningfully around that. It would simply either put you on the lookout for a better buying opportunity. If you were considering new positions in the equity market, and or if you were more trading oriented or intermediate or short term in your focus, you might consider putting on some hedges here to manage risk in the near term.

Remy: Yeah. And I do want to look at the gold chart. So in New York morning trade we are looking at spot gold back above that $5,000 level. And indeed gold has been on a tier. But the recent peaks were also followed by massive daily swings. And we all know that gold is usually traditionally the boring safe haven. So when we see this kind of volatility in precious metals, alongside what we're looking at in terms of the labor market here in the U.S., what is this actually telling you?

Katie: It has been interesting and not at all boring this time around. When we see an uptrend give way to the volatility that we have seen of late in gold. It leans more bearish than it is bullish. And you can see that even in the day to day price swings, it was a little bit more prevalent in the price of silver. But when you have a very wide high low spread day after day after day, that shows sort of fickle price action and it reflects an increase in volatility. does usually mean that sentiment has shifted to some degree.

And that's indeed what we've seen from both gold and silver and the broader precious metals complex that we're looking for, the pullback that was quite dramatic. But it really was preceded by a very dramatic up move. So not terribly damaging in price terms. We are looking for more consolidation in the price of gold and silver. And that means new buyers might also want to wait in this asset class and/or those who are seen it as more of an opportunistic investment, as opposed to a long term holding. That might be reason enough to reduce partial exposure.

Remy: And before I let you go, I do want to get your take on what we're seeing in crypto now that Bitcoin has broken below major support. Are oversold conditions enough for a short term bounce, and what are some levels you're watching in the near term?

Katie: Well it was pretty remarkable to see Bitcoin hold right at that $60,000 mark. that is likely a key level for it.

We've been watching support just shy of that based on a Fibonacci retracement level, something that applies very well to cryptocurrencies in particular. And so we do have some support nearby or that was tested. And we also of course have oversold conditions, but oversold isn't necessarily a good thing.

It means that the downside momentum has brought it to this sort of deeply oversold condition. But you need that momentum shift in order to suggest that it's ready to establish a low. And we don't have that momentum shift yet. But what we do have are some minor short term signs of downside exhaustion based on one of our trend following gauges And that suggests that we'll see very near-term stabilization. But it wouldn't necessarily be convincing enough to suggest that it's time to add exposure, yet. I'd like to see support discovery, meaning some consolidation and improve momentum before considering a counter trend position.

Remy: Well, Katie, we will have to leave it there for today, but always great having you on the show. Thank you so much for joining us on this Monday morning as we kick off a new trading week.

Katie: Thanks,Remy.