Is A Market Breakdown Underway? | Katie Stockton

Bitcoin

Across the shows: 19 speakers in other episodes, 13 bullish and 7 bearish calls, past 30 days

• Katie Stockton · Fairlead StrategiesBullish

  Comfortable owning some Bitcoin, but keeping the position small in the portfolio.

  Bitcoin is one of the assets her firm holds in a portfolio that is otherwise diversified. Its share of the overall portfolio is kept small. Her firm's newly launched Bitcoin ETF is built on technical analysis, which is consistent with its position in the asset. The view is cautious and rests on portfolio construction more than on a detailed Bitcoin thesis.

  “And we're also comfortable owning some crypto or Bitcoin, but, again, not a whole lot of it relative to the overall portfolio.”at 43:00

US stock market outlook

• Katie Stockton · Fairlead Strategies

  Index breakdowns are not yet decisive; a failed rebound this week would confirm them.

  Stockton uses the S&P 500 as her primary input and the Nasdaq-100 as a secondary one. The Nasdaq-100 is below the support level she was watching, while the S&P 500 still has some room, so she would not call the breakdown decisive yet. A breakdown is confirmed only when price stays below a level for a couple of days or weeks. If the Nasdaq-100 fails to rebound this week, especially given its mega-cap and tech weight, that would confirm the breakdowns. Oversold readings on the stochastic suggest stabilization for a few days at least, but intermediate-term oversold conditions on weekly charts are not in place, so the decline could still get worse. Support levels, on average around 7-8% below current levels, frame downside risk rather than acting as price targets. Stockton is not seeing the buy signals her system uses, which require a deeper decline.

  “The Nasdaq-one hundred is a secondary input, and it is below its support level that we had been watching, whereas the S and P five hundred has a little bit of room still. So we wouldn't call this a decisive breakdown yet.”at 3:41

• Katie Stockton · Fairlead Strategies

  First half of 2027 likely difficult for equities if credit spreads break out.

  Stockton says the year-end outlook could be rougher given the breakdowns, and that she is in a risk-management mode. Her conditional view is that if credit spreads break out, which she says is uncomfortably close, the first half of 2027 will probably be difficult for equities. Other concerns include a subtle shift in momentum affecting the VIX and the support levels on the indices. Her own ETF has moved to a bigger risk-off stance than earlier in the year, reflecting its systematic models. She also points to strong fourth-quarter seasonality, improving breadth beneath the surface, and says she would not rule out a stronger finish to the year even if risk metrics become more decisive.

  “We do also know that if credit spreads break out and they're pretty close, uncomfortably close, would say, well, that probably means the first half of twenty twenty seven will be difficult for the equity market.”at 34:38

• Katie Stockton · Fairlead Strategies

  The bull market is mature and tech-led, so returns are likely to be more muted going forward.

  The uptrend is mature after several years, and its leadership is concentrated in tech. Those features suggest returns will be more muted going forward, similar to this year. Stockton does not rely on the four-year cycle, which she treats as one informal input. Her process instead tracks longer-term momentum indicators.

  “it is a mature uptrend at this point, just mature in how many years it's been with us. It's also a fairly concentrated bull market in terms of where the leadership has come from, of course, tech related.”at 38:40

• Katie Stockton · Fairlead Strategies

  Favours defensive, lower-volatility sector exposure, and cutting equities if risk signals get louder.

  Her preference is for diversification and more defensive sector exposure, chosen by how volatile each market segment is rather than just growth versus value. The aim is a portfolio with lower volatility and lower correlation. If risk signals become louder, she would reduce overall equity exposure and build defensive asset classes outside US equities.

  “I think we like the idea of being diversified and having a bit more defensive sector exposure... making sure that your portfolio has some lower volatility.”at 41:56

• Katie Stockton · Fairlead Strategies

  Keen to hold tech stocks while they hold key support levels, as they provide portfolio upside.

  Tech stocks are the market's main source of return potential. Stockton's firm is keen to hold them as long as they hold technical support levels. Holding them is the source of the portfolio's upside. Her view depends on the chart, not on fundamentals.

  “But as long as the technology stocks are able to hold on to support levels, we're very much keen on holding them as well because that is where you get kind of the juice behind a portfolio.”at 42:36

Gold & precious metals

• Katie Stockton · Fairlead Strategies

  Gold's downtrend should stabilize near term on oversold DeMark readings; support near $3,900, then $3,600.

  Gold is in a downtrend that has persisted since a blow-off top, with its indicators supporting that trend for some time. DeMark indicators are price-based tools that count sequential bars to gauge trend exhaustion, and after continued lower lows gold is stretched to the downside. Combined with other overbought/oversold metrics, they suggest a near-term low is probably within reach. Stockton expects stabilization over the next few weeks that could preserve support around $3,900 per ounce, with further support near $3,600 if that fails. Gold is also almost oversold on a long-term basis. She stresses that gold is not attractive in the way an uptrend with positive catalysts or strong momentum would be, so the bounce is a stabilization call, not a bullish trend call.

  “But now it's the DeMark indicators combined with our other overbought oversold metrics that are suggesting that at least a near term low is probably within reach.”at 26:33

• Katie Stockton · Fairlead Strategies

  Gold is a useful diversifier despite its downtrend, given its low correlation to the AI trade.

  Stockton says there is value in gold's lower correlation to other asset classes, so it works as diversification even though the trend is lower. She notes it looks different from the AI trade, which is under pressure. Her firm is comfortable holding gold as a hedging instrument, though only as a small position, because the trend still has downside momentum. This is a portfolio-role argument rather than a call on the price direction.

  “but we think there's almost value in just the lower correlation that it offers to other asset classes. We like the idea of having diversification.”at 27:37

• Katie Stockton · Fairlead Strategies

  Comfortable owning some gold as a diversifier, but only a small position.

  Gold is one of several defensive assets her firm holds alongside fixed income. When equities aren't working, the firm can move into alternatives such as fixed income and gold. The position is kept small relative to the overall portfolio.

  “We're comfortable owning some fixed income, not a whole lot of it. We're comfortable owning some gold, again, not a whole lot of it.”at 43:00

Market sentiment, positioning & volatility

• Katie Stockton · Fairlead Strategies

  Investor sentiment is fearful and positioning uneasy, as investors worry the AI trade lost momentum.

  Stockton says sentiment is pretty fearful at a time when the market is already seeing earnings-driven declines, such as Intel. The numbers show investors are uneasy in their positioning. They are worried that the AI trade has lost momentum, and in some ways it has. She also points to a subtle momentum shift affecting the VIX, a read on market sentiment, as one of the concerns that makes her respectful of risk metrics.

  “But it comes at a time for sure when sentiment is pretty fearful. ... They're pretty uneasy, I think, is the way the numbers reflect things in terms of their positioning because they're worried that the AI trade has lost that momentum”at 4:31

• Katie Stockton · Fairlead Strategies

  Sentiment is not too bullish; fear & greed near 25 is a contrarian positive for stocks.

  Stockton measures sentiment through positioning, not just how markets feel. Positioning includes demand for gold and junk bonds and new highs versus new lows. Her reading shows sentiment is not too bullish. The fear and greed index near 25 sits in extreme fear, which she reads as a contrarian positive. Loss of breadth is a countervailing negative. Small caps recovering helps the market. She says these factors matter for now but won't matter by 2027.

  “And by no means is it too bullish based on our reading... So the fear and greed index is one metric that we track is around 25, which is in that sort of extreme fear territory. So that would be more of a contrarian positive for the market.”at 40:31

US Treasuries & yields

• Katie Stockton · Fairlead Strategies

  Secular shift higher in yields favors bonds as ballast; near-term yields likely neutral.

  Stockton's team has said yields are in a secular shift higher. This is because long-term trend-following thresholds were cleared and a triangle formation was completed by treasury yields, which is a recent catalyst for more upside. Near term, she expects yields and price to be neutral, which means capital preservation for fixed income. Her firm had not been overweight fixed income while bond prices were falling. As yields become attractive enough, though, she expects some migration into fixed income and more defensive positioning. Her own ETF has moved partly into treasuries, which she sees as ballast for a portfolio.

  “And we do think that it will happen, because we think there's been a secular shift higher in yields. ... We saw triangle formation completed by treasury yields as one recent catalyst for more upside.”at 23:18

• Katie Stockton · Fairlead Strategies

  Short-dated Treasuries look more interesting than long-dated ones on relative-strength work.

  Her firm holds both one-to-three-year and long-term Treasuries in its own ETF. If it had to choose, it would favour the short end. The reason is relative-strength work, not a macro view. The short end is more attractive on the technical data she tracks.

  “But probably the short end is a bit more interesting to us right now if we had to choose just in terms of the relative strength work that we track.”at 46:34

Consumer & retail

• Katie Stockton · Fairlead Strategies

  Retailers are starting to penetrate resistance while tech breaks support, showing better breadth underneath.

  Stockton says breadth has improved even as the AI trade is under pressure. She points to the retail sector, which she acknowledges does not have a big footprint. As tech and some names penetrate support, retailers are starting to penetrate resistance. She sees this as better action under the surface that the market is being distracted from, supporting her view that a stronger finish to the year is possible.

  “I mean, look at the retail sector, not to say that it has a big footprint, but as tech and some names are penetrating support while retailers are starting to penetrate resistance.”at 36:05

• Katie Stockton · Fairlead Strategies

  Retail is her latest idea, backed by strong November seasonality and rising momentum.

  Her latest idea centres on retail. The reasons are the pronounced positive seasonal pattern in November and momentum that has started to build. The view is technical and tied to the year-end period.

  “Our latest idea has been centered around retail, which has the positive seasonal influences in November that's quite pronounced, but then also started to gain some momentum.”at 44:46

Credit markets

• Katie Stockton · Fairlead Strategies

  Credit spreads are elevated and a major equity risk metric, signalling possible correction or bear market.

  Credit spreads are one of Stockton's biggest economic inputs and are elevated across the board to the point where her team is paying close attention. They track spreads against historical resistance levels and whether they appear to be reversing a longer-term secular downtrend. Historically, that test has been associated with either very significant corrections, when spreads widen to a degree, or bear market cycles that aren't associated with recessions. She treats it as a good technical read on the economy and its link to the stock market.

  “So, looking sort of across the board on that front, they are elevated to the point where we're really paying attention.”at 15:54

AI: overall outlook

• Katie Stockton · Fairlead Strategies

  AI's long-term stock uptrend is intact and still has positive long-term momentum, despite corrections.

  Stockton argues that fundamentals drive long-term trends, so if you are bullish on the AI buildout and growth, that should be the driver of a long-term trend. That long-term uptrend is underway and still has positive long-term momentum. She says it won't go higher all the time, so corrective phases can happen within that context. Stockton adds that AI ETFs are all testing support levels after last week's action, and that the winners and losers within corrective phases can be revealed. She sees this as a healthy reset within a secular uptrend, though one that could be painful for a portfolio in the meantime.

  “We believe that the fundamentals drive long term trends, so that would certainly apply to AI. So if you're bullish on AI build out and growth, and most people seem to be, well, that should be the driver of a long term trend. And that long term uptrend is underway”at 16:45

US elections & politics

• Katie Stockton · Fairlead Strategies

  An oversold tape makes a positive market reaction to the midterm results more likely.

  Stockton says her team looks at whether the market has run up strongly or is more oversold coming into events such as elections, earnings and Fed announcements, because that sets the tone. Based on her experience, a positive reaction is easier to unfold from a more oversold tape. A steep run-up into the election would make a positive reaction harder. She adds that relief from uncertainty is often welcomed by market participants even when the outcome is not positive. Her view is that short-term oversold readings are more likely to support a positive reaction, though she says anything can happen.

  “we like to look at whether the market has run up strongly or is more oversold, because that can set the tone. It's easier in a way for a positive reaction to unfold if we do have a tape that's more oversold.”at 31:03

US housing

• Katie Stockton · Fairlead Strategies

  Favours interest-rate-sensitive homebuilders on a short-term view as yields consolidate.

  Her research has been favouring interest-rate-sensitive areas with a short-term horizon, such as homebuilders. The reason is that yields are entering a consolidation phase. The view is technical, and it is a short-term tactical call.

  “We've been keen more on some of the interest rate sensitives with the short term time horizon, like homebuilders even, as yields enter this consolidation phase.”at 44:51

International equities

• Katie Stockton · Fairlead Strategies

  Underweight international versus the US; country-level opportunities only after a breakout.

  Stockton's firm is underweight international relative to the US as a general rule. Non-US stocks tend to underperform over the very long term. The ratios that would justify a larger allocation are not setting up now. She would look at individual countries if they break out. Brazil is an example, where a gap that looked vulnerable to being filled shows how charts can inform country bias.

  “So we would be underweight international relative to The U. S, and that's most always the case.”at 45:21

Oil & fuels

• Katie Stockton · Fairlead Strategies

  A WTI breakout above $105 from its triangle would be a risk signal for equities.

  Crude has formed a large triangle pattern. That is a neutral pattern, but it follows a shift in long-term momentum to the upside. A breakout above about $105 per barrel WTI would be a risk metric for equities, because the equity market doesn't tend to like rising oil. The concern is tied to the Iran war and the oil price's effect on stocks.

  “it's formed a big triangle pattern, which is a neutral pattern, but it follows a shift in long term momentum to the upside. So if we were to see a breakout from the triangle, which would happen above $105 per barrel, that could be one of those other risk metrics for equities”at 47:22