Bears Slowly Losing Their Grip

Hello TheoTrader,

Stocks finished lower last week. Fears surrounding the geopolitical situation in the Middle East continue to escalate.

I am not discounting the seriousness of the situation. But the market has a knack for picking up on these things before they begin and end.

Last week, energy ran the table. Oil prices surged over 36% in what will go down as one of the sharpest rallies in history.

But I am actually more interested in what got sold last week. 

There is an entire story hidden in what went down. I am going to show you why this selloff is setting up the turn.

Bears Are Running But Are They Tiring?

I will be very upfront here. This is the most bearish sector leaderboard we have had since the market's tariff tantrum and lows of April 2025.

Here is what leadership looked like:

There is not a single sector that points to growth on the board. Energy just took the one-year leader position away from industrials.

That should terrify bulls. But it does not.

It is always darkest before dawn. What I saw last week told me we are in the late stages of the night now.

The Hidden Story in the Selloff

Energy's leadership last week masks the bigger story. The risk-off sectors like consumer staples, healthcare, and utilities sold off hard. Much harder than the growth sectors.

That is right. Sectors like technology, communications, and consumer discretionary all sold off less than their defensive counterparts.

This is a profound and consequential shift in market behavior.

It means that growth has already sold off enough to the point where there are not as many sellers left in those sectors. The weak hands are out. The capitulation has happened.

And it just so happens that those are the very sectors that need to turn bullish first in order for this market to bottom.

There is a reason the Nasdaq sold off the least compared to the Dow and S&P last week. Growth is building a base while defensives get liquidated.

Why This Matters

I have seen this setup play out dozens of times. The final stage of a correction always looks the same.

Defensive sectors lead for weeks. Everyone piles into utilities, staples, and energy. Then suddenly, defensives start selling off harder than growth.

That is when you know the turn is close.

The VIX spiked above 25 last week before reversing. Put positioning in the S&P 500 hit levels we have not seen since early 2023. Both of those periods preceded major rallies.

Short interest in technology remains elevated. Corporate insiders in tech continue buying at levels not seen in years.

One side of this trade is dead wrong. I know which side I am on.

How I Am Positioned

I started dipping my toes back into the long side last week. By the end of this week, I expect to be fully bullish.

I am sitting on about 70% cash right now, down from 90% two weeks ago. I closed out my QQQ put hedge. I am building small positions in beaten-down growth names.

The Trinity Terminal has started picking up setups in technology and consumer discretionary again. Those signals went dark for nearly a month. Now they are coming back.

I am watching for one more flush lower. If we get it, I will deploy the rest of my capital aggressively.

If we do not get it, I will add on strength as growth sectors reassert leadership.

The Tide Is Turning

This is not a time to be fearful from narratives. This is a time to be courageous with probabilities.

The sector rotation is telling us the correction is in its final stages. Growth has exhausted its sellers. Defensives are getting liquidated by late longs who chased safety.

The people who call for crashes never make money on them. They are never positioned correctly when the turn comes.

I expect this market to bottom within the next two weeks. The catalyst could be anything from stabilization in oil prices to a de-escalation signal from the Middle East.

Positions matter more than opinions. I have mine on. Do you have yours?

Stay tuned, 

Gianni Di Poce