Hey trader,
When will we bottom? The question everyone has.
I’ve warned folks for weeks about rising risks in the stock market.
The wrong sectors led us higher while the right ones faded.
Now the crowd is finally noticing the pattern.
Look, I’ve seen this exact setup play out dozens of times. So, naturally, I’ve learned how to get ahead of the turn.
Today, I’ll take you through the specific signal I watch to identify when selling is about to exhaust itself.
The Fear Story Always Changes. The Pattern Never Does.
Every correction needs a narrative. This time, it is AI taking everyone's jobs and leaving us all poor.
A few months ago it was inflation. Before that, the banking crisis. The story rotates. The mechanics underneath stay the same.
I think the AI fear is exaggerated. But it does not matter what I think.
This narrative has to play out in the coming weeks to bring stocks lower. We need to see real fear and real liquidation.
We are not there yet. Just this week, industrials, consumer staples, and basic materials all hit new all-time highs.
Utilities are surging too.
When a real pullback arrives, nothing gets spared. I do not care how defensive the sector is.
Forced liquidation hits everything. It is the reason I brought up bonds to you last week.
Bonds tend to do well when stocks do not, and they are surging right now. That rotation is confirmation, not coincidence.
Let me be clear about the bigger picture. I do not think we are heading into a bear market.
I am still very bullish on the long-term and intermediate-term trends. Every single year has meaningful drawdowns.
I went back through the data from 2010 forward:
- 2011 had a 21% drawdown and still finished positive
- 2018 had both a 12% and a 20% drawdown in the same year
- 2020 had four separate drawdowns including a 36% crash
- 2022 had seven distinct pullbacks ranging from 6% to 19%
- Even 2024 had a 6% and a 10% drawdown before rallying to new highs
Corrections are the price of admission. The traders who refuse to sit through them miss the recoveries.
The One Signal I Am Watching
The most important sector in the stock market is technology. It leads on the way up and on the way down.
The NASDAQ topped out back in October. It has not made a new all-time high since, even while the S&P 500 hit fresh highs last week.
That divergence has been the warning signal all along.
Right now, tech is leading to the downside. At some point, that will reverse.
The turn does not look like a sudden rally. It looks like a subtle shift.
Picture a day where the S&P 500 drops 1%, but the tech sector only drops 0.5%. That is relative strength.
Even though tech is still falling, it is falling less than the broad market. That tells me bigger buyers are stepping in and absorbing supply.
It is one of the earliest and most reliable signals that a bottom is forming.
I am watching for this shift over the next two to four weeks. My base case is a bottom by mid-March at the latest.
The target on the downside is the November 21st low on the S&P 500. That would represent a 5-8% washout that shakes out all the longs and flips sentiment from greed to fear.
That is when the real buying opportunity arrives.
How I Am Positioned
I am sitting on 90% cash right now. In some accounts, closer to 95%.
I have a QQQ put on for about six weeks out, targeting a retest of previous support. I also added a small SOXS position to hedge against semiconductor weakness.
When I say I am bearish, I mean I am short with the intention of getting long. The real money is on the long side once this market finds its footing.
The Trinity Terminal has been picking up setups in inflationary sectors. Energy, consumer staples, and utilities are all leading while tech gets hit.
That is textbook risk-off behavior. It is telling me exactly where to look when the turn comes.
Stay patient. The biggest opportunity of 2026 is approaching fast.
Positions matter more than opinions. I have mine on. Make sure you have yours ready.
Gianni Di Poce
THEOTrade