Summary
- S&P 500 Momentum Gauges have turned negative on daily and weekly signals, indicating strong outflows and heightened risk for February.
- Technology sector gauges are negative across all timeframes, with mega caps underperforming and only NVDA maintaining key support.
- February historically averages negative S&P 500 returns; sector rotation favors Basic Materials and Energy over Technology and Real Estate.
- Reducing market exposure and selective investing is advised, as model portfolios have shifted to cash or Technology bear funds.
- A variety of short-term and long-term portfolios continue to outperform the major indices and, especially when following MG signals to avoid major downturns.
Introduction
This article serves as a brief January recap and a forecast into February. Some records were set in January that may be the first to have ever happened in my lifetime. As February begins we have some precarious conditions:
- S&P 500 Momentum Gauge signals have turned negative for both daily and weekly signals.
- The Market Momentum Gauges have reached the highest negative values since November after being positive into January.
- Gold saw the largest one day percentage decline on Friday of approximately -11.4% putting it among the largest declines in over four decades back to the 1980s. The decline was potentially larger than the 1983 decline with an intraday move of -13%. I cannot confirm as exact percentages vary.
- The Technology sector gauges are negative on the daily, weekly, and monthly gauge signals as the largest and most important bellwether market sector.
- A new Fed Chairman Kevin Warsh has been selected to replace Jerome Powell in May. Changes in Fed Chairs have historically averaged large market declines in the following weeks.
Timing matters, and it matters greatly. I have spent the last 35 years trading, researching, and constructing algorithms to identify and leverage the value across fundamental, technical, and behavioral finance models. Of the ten portfolio models designed for optimal portfolio mixes for members to beat the market at Value & Momentum Breakouts, eight come from enhancing well-tested anomaly research in published financial journals. All of the models continue to outperform the S&P 500 in live forward testing here on Seeking Alpha, and again this year.
First Negative S&P 500 Signals As Mega Tech Breaks Down From October Highs
This article builds on my prior 2026 outlook articles with an emphasis on the Momentum Gauge signals and major changes occurring in the first month of the year. Prior articles provide context for the rotation to new leadership we are seeing from last year.
- Chasing Bubbles And Riding Value In Another Year Leading The S&P 500.
- Rotations Continue To The Next Rally As Markets Anticipate The January Effect.
I am a strong advocate for leveraging the strengths of different fields of financial analysis, from fundamental to technical to a wide variety of behavioral variables. These approaches each can deliver successful model portfolios, as documented through our live trading on Seeking Alpha the last 9 years.
The thing to consider is that we rarely ever see market leaders from the prior year be market leaders for the coming year. ~ JD Henning, January Podcast.
Somewhere over the past decades of trading and researching the markets, I discarded the notion of being a pure buy-and-hold investor. People may do well in buy-and-hold approaches, but they invariably have to ride through some major downturns to arrive with good results in the end. Back in the days when I relied on well-known investment firms for advice, I often received more coaching about my patience than any valuable insight about market behavior. Like many of you, my cynicism and curiosity about the financial markets led me to test, experiment, and run studies across thousands of different trading approaches, algorithms, and models. The long-term development of my momentum gauge algorithms for market and sector trading signals is one of the key reasons I am no longer a “buy/hold and hope for the best” investor.
