1/4 Always A Headline
Welcome to 2026
There will always be a headline, and this weekend provided no shortage of fresh geopolitical activity with the capture of Venezuela’s president Nicolas Maduro. I have no expertise or valuable commentary to provide on the specific subject, instead the event as it relates to portfolio management is a loud reminder that there will always be a headline. The focus in my work is never to determine which headline matters instead focus on price and the risk-off criteria to determine just that. The process did well to deliver outperformance in 2025, and I trust the system will do well to navigate 2026.
The final session of 2025 flagged potential risk— and the first session of 2026 for now has avoided an alarm scenario. For me, the year begins mostly sidelined.
Risk Off Criteria: 1 of 3 Active
Reference: “How I Think About The Risk-Off Alarm”
The core risk analysis ended last week with 1 of 3 active criteria. Over the last two weeks starting December 16 there has been no shortage of opportunity to trigger an alarm, but for now the alarm event has been avoided.
Trend: Price closed just above the short term trend (20-day moving average)
Breadth: Positive to end the week
Momentum: The momentum oscillator marked another interruption on December 31
Navigating The Short Term
The S&P 500 closed above the short term trend in Friday’s session and the intraday session traded the 6750-6850 support range. This range will continue to earn the benefit of the doubt as support, conditional on the absence of a risk-off alarm.
The navigation of the short term to start 2026:
Maintain bullish with prices above 6850
The lower boundary support range 6750 can be afforded the benefit of the doubt, only in the scenario where a risk-off alarm is avoided. Breadth was negative for 3 of 4 sessions last week, and Momentum is currently recorded as negative
All three components of the risk-off alarm are uncomfortably close to triggering. Despite this, no bearish consideration until a confirmed risk-off alarm
Upside targets
8000 — psychological & notable Fibonacci extension
7500, 7300, 7000 — purely psychological consideration
6850 — short term trend (20-day moving average), risk-off criteria component, benefit of the doubt as support
6750, 6500, 6300, 6147 are prior breakout levels that marked the next advance
6750 is slightly below the short term trend and should be considered support in the immediate term.
6500, 6300 and 6147 consideration as support on breakdown scenarios, currently not in consideration. In a risk-off alarm scenario, these become the downside targets
The Melt-Up Trade (Risk On Barometers— ARKK & IWM)
ARKK - ARK Innovation ETF
As shared in the end of year note I have elected to suspend the prior melt-up trade following two trades that increased the trade exposure only to have the risk tolerance level 79 shortly breached. Establishing position here is so far tracking a similar path to that in April where a few attempts were needed before the trade was able to ride the trend.
ARKK remains a focus to capture outperformance. If a market melt-up transpire I continue to speculate this ETF will outperform the general market. I do not visualize a scenario where the market progresses through a melt-up and ARKK is left behind underperforming.
The criteria to reinitiate the trade are simple:
Absence of risk-off alarm
ARKK trading above the 50-day moving average, 80.30
ARKK closing above 81 will mark the re-entry with an initial 1/4 position, and above 84 to 1/2. Until such a time the trade remains on suspended and on watch for reentry.
IWM - Russell 2000 ETF
The Russell 2000 ETF IWM remains trading above 242 keeping the melt-up narrative an active thought.
Bonds (20+ Year Treasury Bond)
No changes to bond positioning
Bond positioning is starting the year at 25% as established in 2025. The position afforded little to no performance, trading sideways through the year. At this time I will maintain this exposure to begin 2026. Trading above 93 will mark a point to monitor any weakness in equities.
Sentiment & Positioning Check
Sentiment returned to Fear as reported by the CNN Fear & Greed Index.
Active fund managers continued to modestly US equity reduce exposure into year end, however the exposure remains strong. At this time between sentiment and positioning there is no insight to capture that adds probability to a melt-up or breakdown.
The ‘perfect scenario’ I am monitoring and hope to see transpire during a market top is one where sentiment is defined by extreme greed, and active fund manager positioning is overextended marking a point where everyone is in market pool with both feet in the deep end.
Summary Outlook
The year begins on the sidelines, with the exception of two active trades in TCEHY and GRMN carrying over from 2025 (TCHEY from 2024). The melt-up trade utilizing ARKK remains the primary trade focus to capture outperformance, establishing position here is a priority when the melt-up narrative is not on edge with the risk-off criteria in such close proximity to triggering an alarm scenario.
I am equally prepared to shift into bearish positioning in the event of a confirmed risk-off alarm.
Strategy Updates— Immediate Term
Key Bullish Criteria:
Shopping Zone: S&P 500 > 6750-6850
Risk-Off Signals: 1 of 3 currently active
Risk-On Trade: Long ARKK > 81 at 1/4 size, increase to 1/2 above 84
Individual Positions: Long TCEHY, GRMN
TCEHY - 1/3, consideration to increase trade to full exposure > 83
B - closed, trade summary will be captured in the end of month update
GRMN - full exposure
Bearish Scenarios:
No bearish consideration until risk-off criteria trigger an alarm with the simultaneous breakdown of trend, breadth, and momentum.
Long Bond Exposure: ~25%
Disclaimer: This publication is for informational and educational purposes only. Nothing herein should be considered financial advice or a recommendation. I am not a financial advisor. This content is meant to document my thinking, and hopefully encourage yours.