Watch Out For The Market's 2026 Balancing Act

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The market’s biggest headwind in 2026 may not be what you investors are thinking.

If history is any guide, Wall Street is going to have a very difficult balancing act in 2026—and it’s not between the Bulls and the Bears. In fact, it’s between the Bulls and the Bulls.

As you can see from the table below, there isn’t a single major bank with a target for the S&P 500 in 2026 that’s lower than where we currently stand at about 6,900.

The market’s biggest headwind in 2026 may not be what you investors are thinking.

If history is any guide, Wall Street is going to have a very difficult balancing act in 2026—and it’s not between the Bulls and the Bears. In fact, it’s between the Bulls and the Bulls.

As you can see from the table below, there isn’t a single major bank with a target for the S&P 500 in 2026 that’s lower than where we currently stand at about 6,900.

With respect to last week’s market outlook, I would not call the current environment a euphoric top, but finding a narrative that will provide an increasingly bullish consensus looks like it will be hard to find.

 

“Give them a number or a date, but never both.”
- Wall St. strategists’ axiom

In fairness to the Wall Street strategist, their optimism in early 2025 was ultimately proven correct, as we closed significantly higher than their early 2025 targets.

Timing the market is tough. It’s hard to be bullish when everyone else is bearish, but it’s even more difficult to be bullish and correct when everyone else agrees with you.

An easier market forecast in a time like this is that the market will see and increase in volatility. This is Wall Street's way of saying an increase in the number of drawdowns from market highs.

Another outcome, which is already beginning to play out, is that the bull market will continue higher, but there will be significant market rotation.

The first trading day of the year was a clear example of the market rotation that has been underway for some time.

This type of market action is great news for active swing traders, as it can provide many more opportunities to buy your favorite trends on a pullback. And when pullbacks are created by market rotation, they are a healthy characteristic of durable bull markets.

Profiting from Market Rotation

In addition to the balancing act in market sentiment, we’re looking for the market to broaden out and experience more market rotation.

In last week’s Market Outlook, I outlined 5 measures of a healthy bull trend. When you can identify a healthy bull trend, several types of active trading strategies work very well such as:

1. Buying breakouts
2. Buying short pullbacks
3. Buying intermediate term pull back to 50 and 200-day time from moving averages and support.
4. Letting your good winners run for bigger gains
5. And more.

If you didn’t see last week’s article, I’d recommend taking a few minutes to learn the 5 trends that enable you to find the best bull market trends.

Here’s what happened in the market on Friday that every investor should be focused on, and MarketGauge members should be able to profit from with the MarketGauge Opportunity Framework, explained last week and demonstrated below.

AI Fatigue Will Be The Savvy Investor’s Friend, but Wait For It…

Friday market action should have every MarketGauge follower focuses on two things.

1. It was the first trading day of the year and that really matters. See the “Signal of The Year” section of the Market Outlook from two weeks ago if you’re not sure why.

The annotated chart from the front page of our Big View shows how the market signaled a big disagreement about the direction of the trend. It’s also market rotation.

The Nasdaq 100 stocks (big cap tech) got hit while other segments of the market held up and even did well.

In fact, if you look under the hood of the QQQ, there was another big divergence in the performance of the MAG7 and the SMH stocks.

The MAG 7 stocks, as represented by the ETF (MAGS), had a very bearish day (even with NVDA up), while the SMH had a very bullish day.

This divergence and others like it, have been underway for weeks and months. This means that when you can see it happening, you can be ready to capitalize on it, recognize a weak market pullback from a healthy one, and better understand where the best opportunities are in any market conditions.

Below you’ll see the chart of the MAGS contrasted with annotations vs a chart of the SMH.

The comments on the chart all reference the fact that on the day(s) leading up to Friday all but the volume indicator, (4 of the 5) were bearish. As a result, the break of the 50-day MA should have been expected to continue.

The SMH ETF is also composed of large-cap technology stocks, and you would think that it would follow the Magnificent 7 stocks or vice versa.

However, the SMH was in almost the opposite condition as the MAGS ETF (4 of the 5 indicators were BULLISH). See below:

It’s hard to know how a stock will react to the market or news that is not very significant, but it’s not hard to see when a stock's Price Trend, Momentum, Leadership, and Volume Trends are bullish or bearish.

When you can see the condition of these trends, it’s easier to anticipate which way the price trend is likely to go.

MU Was Clearly Bullish and Ready To Run

As you can see from the chart below, MU, which is in the SMH, was clearly bullish on all 5 indicators (and the narrative is that customers can’t get enough of their chips). So it’s not surprising that once it got off to a good start, it kept going higher.

Earlier in the week, during our Active Investing Edge live-in-the-market mentoring sessions, we reviewed RKLB as a stock with an exciting narrative and very bullish conditions. Check out the chart below and see why I like it.

2026 is going to be filled with RKLB like set ups, and they are not all going to be tech stocks. The market has been rotating into several other dynamic sectors, and while the headlines will be telling distracting stories about “AI fatigue and capital overspending,” a new bull market will be thriving.

Don’t miss it. You now know what to look for.

In 2026 there will be hundreds of stocks that move out from the shadows of the MAG 7 mania of the last several years and get “discovered” as their AI-assisted productivity gains lead to increased expectations of growth in future profits, a growing bullish narrative and, as a result, durable bull market trends that build wealth for active and tactical investors.

If you'd like help taking advantage of the new bull market in 2026, contact us.

• For individual traders or those who want access to professional-grade models: www.marketgauge.com/call
• For asset management or RIAs seeking algorithmic systems: email Ben at [email protected]
•  Follow me on Linked In, and ask Rob how to join our Active Investing Edge program

Best wishes for your trading,
Geoff Bysshe

 
 
 
 

Every week we review the big picture of the market's technical condition as seen through the lens of our Big View data charts. The bullets provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral.  The video analysis dives deeper.

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Summary: Overall conditions remain cautiously risk-on despite a roughly 1% pullback, strong foreign equities, resilient breadth, improving risk gauges, leadership from semiconductors, early crypto strength, and favorable January seasonality continue to support the trend—though momentum is clearly waning. Offsetting this, mixed volume, weakening internals led by Nasdaq, a deteriorating new-high/new-low ratio, growth stocks slipping into a warning phase, and unresolved signals in gold and volatility keep the backdrop fragile rather than decisively bullish.

Risk On

• Indexes were down on average a bit more than -1%, Three of the four have bull phases with the exception of NASDAQ which is now trading in a warning phase. Momentum is starting to wane on daily charts but still strong on weekly. A weak risk-on rating overall. (+)
• Asian foreign equities put in an extremely strong week. (+)
• The risk gauges improved slightly to 80%risk on due to weakness in Gold. (+)
• The modern family is looking good with Semiconductors putting in a new intraday all-time high and all of the members in bull phases. Momentum is waning a bit. (+)
• Foreign equities remain strong with Emerging markets breaking out to a new all-time high. (+)
• Bitcoin broke out above the highs for the last few weeks, potentially a good sign, but still early. (+)
• January seasonals tend to be very strong, typically led by Nasdaq with good participation in S&P and IWM. (+)

Neutral

• Volume patterns remain mixed with QQQ and IWM showing the strongest relative volume. (=)
• More sectors closed down on the week, though Semiconductors (traditionally risk-on) flew on Friday to open up the year strong while consumer discretionary was down. (=)
• Our three readings on market internals look like a weak neutral at best with many of them crossing below the mid-line with Nasdaq looking more like a risk-off. (=)
• Cash volatility rose slightly on the week, but still near its lows, bouncing from the lower end of the bollinger band. (=)
• Growth stocks closed in a warning phase with Value leading on both short and longer-term readings. (=)
• Gold looks like it has an island top that has yet to be resolved. It has several days of compression and it will be important to see which way it breaks out. (=)
• Interest rates are staying at a neutral read. (=)

Risk Off

• New 52 week  high/ low ratio is stacked and sloped negative. (-)
• Our three readings on market internals look weak with many of them crossing below the mid-line with Nasdaq looking more like a risk-off. (-)
• The color charts (moving average of stocks above key moving averages) moved to a modest risk off position across all indexes (-)

 

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Actionable Trading Plan 

Core Bias & Positioning

• Maintain reduced but constructive risk exposure (e.g., ~60–70% of normal risk), acknowledging the still-positive regime but fading momentum and weakening Nasdaq internals.
  
• Favor incremental adds, not aggressive new exposure, until internals and the new-high/new-low ratio stabilize.
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What to Own / Tilt Toward

• Semiconductors / Modern Family leaders: Maintain core holdings; allow winners to run but avoid chasing breakouts. Use strength to rebalance rather than add aggressively.
  
• Foreign equities (EM & Asia): Continue to overweight on pullbacks, given confirmed strength and new highs, while respecting global risk spillover if U.S. weakness deepens.
  
• Bitcoin / crypto exposure: Treat the breakout as early-stage confirmation—pilot-size positions only until follow-through improves.
  
• Value > Growth: Tilt toward value-oriented exposures while growth remains in a warning phase.
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What to Reduce / Avoid

• Nasdaq-heavy growth trades: Avoid fresh momentum entries until internals reclaim mid-range readings.
  
• Broad index chasing: Do not add exposure simply because of seasonality; require confirmation from volume and breadth.
  
• Gold: Stay neutral and hands-off until the compression resolves directionally.
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Risk Management

• Tighten trailing risk controls on equity positions, especially those extended from recent highs.
  
• Be prepared to cut exposure quickly if:
  
  • Nasdaq internals continue to deteriorate
    
  • New-high/new-low ratios remain stacked negative
    
  • Volatility expands meaningfully from current lows
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Tactical Triggers to Watch

• Bullish add signal: Breadth stabilizes, NH/NL flattens or turns up, and Nasdaq regains neutral internals.
  
• Defensive shift: Volatility expansion + further breakdown in growth internals → move toward cash or defensive rotations.
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Bottom Line

• Trade selectively and patiently: lean into leadership and global strength, respect fading momentum, and keep dry powder ready. The market still supports upside participation, but confirmation—not seasonality alone—should dictate position sizing.