2/1 Close Call
Avoiding Alarms Part 2
Another week with two panic sessions. In full transparency— as I watched markets trade both Thursday and Friday I half expected I would be writing an “alarm” note, nonetheless an alarm scenario was avoided both days and the risk criteria surprisingly ended both sessions absent.
The melt-up trade in ARKK has been placed on pause, closing the third attempt in establishing a position. For me, January ends with a series of paper cuts.
Despite the volatility through Friday, the mantra “bullish until proven guilty” carries on into next week with a hint of caution stemming from two weeks of elevated volatility and a breakdown in the core melt-up trade.
Onto February.
Risk Off Criteria: 0 of 3 Active
Reference: “How I Think About The Risk-Off Alarm”
The core risk analysis ended last week with 0 of 3 active criteria.
Trend: Price closed above the short term trend (20-day moving average) through all sessions last week, including the wide range of Thursday & Friday
Breadth: Positive all week, more stocks are making new highs versus new lows across the NYSE and Nasdaq markets
Momentum: Technically positive— notably flat over the last two months
Navigating The Short Term
The psychological resistance on the 7000 continues to serve as a price wall for the S&P 500. The risk criteria ended the last three sessions of the week entirely absent, if you watched markets these days it certainly did not feel so.
With no alarm or breakdown in core criteria, the analysis maintains a bullish lean and there is no change to navigating the short term from the plan shared in the opening January 4 note:
Maintain bullish with prices above 6925 (aligned with 20-day moving average)
The lower boundary 6750 stays at the most reasonable support level below the moving average, this will continue to be afforded the benefit of the doubt on any intraday volatility. When the S&P 500 closes above 7000, this lower boundary I will revise to utilizing 6900 as the first main support level below the moving average
No bearish consideration until a risk-off alarm trigger
Upside targets
8000 — psychological & notable Fibonacci extension
7500, 7300, 7000 — purely psychological consideration
6925— 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 a staged advance
6750 is now well below the short term trend and should be considered support in the immediate term in the absence of an alarm scenario.
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
The ARKK trade has failed in the third attempt to establish long position following a breakdown below the 79 risk tolerance threshold. The upside target of 130 is on pause until the 50-day moving average is recaptured. I maintain the speculation that there remains outperformance to capture here and will make a fourth attempt to establish long ARKK.
Following the loss of the risk tolerance level of 79 the ARKK ETF swiftly declined to end the week below 75. There is an observation to be made that the ETF has declined right into the long term moving average (200-day) in Friday’s session for support. While a positive observation and noting that late November offered similar support the trend itself is unreliable for the ETF with an unreliable history.
The chart has a poor appearance to end the week. The plan to reestablish long positioning in ARKK will maintain the same strategy as the prior three attempts:
Open initial long 1/4 size above 80.30 (50-day moving average)
Risk tolerance threshold will remain at 79 to manage downside risk while establishing position
I am looking to buy strength in the ETF, not weakness. Through Friday there is weakness.
IWM - Russell 2000 ETF
The Russell 2000 ETF IWM continues to trade through an all time high breakout— in an isolated review this chart provides strong support for the bullish narrative.
Bonds (20+ Year Treasury Bond)
No changes to bond positioning
Bond positioning remains at 25% as established in 2025. The position continues to afford little to no performance, trading sideways through most of 2025 and through January 2026, currently trading in the April 2024 low range. Trading above 93 will mark a point to monitor any weakness in equities.
Sentiment & Positioning Check
Sentiment as by the CNN Fear & Greed Index ended the week reading Greed.
Active fund managers through mid week increased exposure versus the prior week. With the data set only updated once per week (Wednesday) the volatility through Thursday and Friday is not reflected. I am more interested in the published data next week to see how fund managers positioned through the end of week panic.
The analysis of sentiment and positioning at present do not deliver any meaningful insight. This will continue to be monitored however only when both data sets align at relative highs or relative lows is there consideration in utilizing the data.
Summary Outlook
Until there is a risk-off alarm the mantra will remain “bullish until proven guilty”. The focus and patience remains on establishing core exposure to ARKK.
Strategy Updates— Immediate Term
Key Bullish Criteria:
Shopping Zone: S&P 500 > 6920
Risk-Off Signals: 0 of 3 currently active (momentum flat/interrupted)
Risk-On Trade: Position Long ARKK 1/4 size with closing prices > 80.30, risk tolerance 79
Individual Positions: Long TCEHY, GRMN
TCEHY - 1/3, consideration to increase trade to 2/3 exposure > 82
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.