/ December 08 / Weekly Preview
-
Monday:
N/A
---
Tuesday:
JOLTs Job Openings (7.2M exp.)
---
Wednesday:
Fed Interest Rate Decision (0.25bps cut expected)
FOMC Economic Projections
---
Thursday:
Initial Jobless Claims (221K exp.)
---
Friday:
Fed Speakers
-
Monday:
Toll Brothers, Inc.
---
Tuesday:
BHP Group Limited
AutoZone, Inc.
GameStop Corporation
---
Wednesday:
Oracle Corporation
Adobe Inc.
Chewy, Inc.
---
Thursday:
Broadcom Inc.
Costco Wholesale Corporation
lululemon athletica inc.
---
Friday:
N/A
Will The Rally Broaden in 2026?
Got a question about the markets, your investments, or a topic you’d like us to discuss in an upcoming article? We read every message and may feature your question in our daily write-ups!
Email: andrei@signal-sigma.com
Follow & DM on X: @signal_sigma
Markets started December on a high note, as bullish spirits returned among retail investors in particular. Many stocks regained their technical footing as well. Seasonality, share buybacks and history are leaning in favor of the bulls at the moment, supported by a Fed rate cut expectation, and a gradual cooling of inflation.
Furthermore, under-invested managers (especially in the Tech space) are prone to playing catch up and “chase into year-end”, as portfolio window dressing takes place. With volatility easing and breadth improving, the path of least resistance near term remains higher, especially if support holds in the equities space.
Our Sentiment Study reveals a significant increase in optimism, which we would attribute primarily to shifting expectations regarding Fed policy.
On December 1, the Fed officially ended its quantitative tightening (QT) program, thus removing a persistent headwind for investors. A more accommodative stance from the Fed in 2026 should translate into an injection of fresh liquidity in financial markets.
With the FOMC rate decision coming this week, futures markets now reflect a very high probability of a 0.25% rate cut. Expectations for a further cut in March and April 2026 have also risen. The market performs well during periods of a Federal Reserve rate-cutting cycles when the economy is not in a recession.
Equity markets have remained resilient over the past 2 weeks, despite the shift away from stretched growth names. Improved participation has translated into a rotation where Tech (XLK) has lagged and primary beneficiaries were Financials (XLF), Energy (XLE) and Industrials (XLI). The chart below uses 3-Month Z-Scores for the bars, emphasizing near term rotation flows.
This improvement is a necessary component of a more sustainable and broad rally.
The focus now shifts toward a confirmation of the bullish trend, as investors will closely scrutinize the Fed’s commentary for clues on the timing and scope of further easing. Economic data, most notably inflation and employment related, will play a key role in shaping expectations.
For now, the rally appears sustainable, but fundamentals will matter more and more going further into 2026. Let’s review the technical backdrop.
SPY is hovering in close proximity to all-time-highs, with the first lines of support and resistance almost equally spaced out. To the upside, resistance stands at $708 (+3.35%, R1). Support lies at the 50-DMA cluster, where the M-Trend level also resides ($670, -2.1%).
Constructive price action has not yet tipped our Buying Regime indicator into a positive reading so far. GEX is positive on all timeframes, and Dark Pools buying has accelerated especially in the tech sector.
Critically, some underappreciated sectors, such as value and cyclical-linked areas, also registered relative gains. Magnificent 7 stocks registered a higher correlation variance to SPY, a disposition usually associated with rising markets.
A recent study by Carson Research suggests that 2026 will be a bullish year as momentum continues. They identified 4 historical instances when the S&P 500 fell by more than -15% in a given year, then recovered to double digits by year-end.
Overall, the technical backdrop is bullish but is not devoid of risk.
The Fed meeting on December 10 looms as the central anchor for further market moves. The 25 bps cut has already been well telegraphed and priced in, so the focus will be on the path of of further cuts. If the Fed sounds hawkish on those, we might see increased volatility and a potential rotation out of overvalued sectors.
Labor market data from JOLTS and weekly jobless claims will also impact expectations regarding consumer spending and credit risk. The current setup points to a test of sentiment, through the lens of Fed liquidity, economic and earnings data. Small Caps (IWM) are on the cusp of a relative-to-SPY breakout, but we know from our own backtesting that whenever this metric exceeds 1 Standard Deviation, SPY tends to outperform and Small Caps performance turns flat.
As such, the stakes are for the rally to broaden beyond tech and mega-caps and extend into 2026. If not, this “year‑end bounce” risks fading or turning into a broader reassessment.
As we have discussed, the bull case leans heavily on liquidity, fiscal support, and renewed optimism that drives investment. What about the bear case?
Primarily, the bear case rests on valuation concerns. Our own Valuation Market Study puts the current median S&P 500 EV / Sales near the very top of its cycle range (4.43 vs 4.60). Historically, whenever S&P 500 stocks reached valuations this high, a mean-reversion has always occurred, with a sizable drawdown possible (-21% in terms of valuation compression, if we are to go by the decade average which is 3.49x).
As is always the case, overpaying for valuations amplifies the downside if growth or liquidity fails to meet expectations.
Furthermore, some fundamentals are starting to fray beneath the surface. Household debt is rising, delinquencies are increasing across income brackets, and private credit markets are displaying early warning signs. Meanwhile, despite the improvement, the rally remains narrowly focused on a few mega-cap stocks tied to artificial intelligence. If those stocks stumble, the overall market could rapidly lose its gains - and this is a key risk.
If the narrative around AI cracks even slightly, whether due to earnings disappointments, regulatory headwinds, or shifting investor sentiment, the broader market is sure to struggle. The problem with narrow leadership is that the vast majority of earnings growth has come from a handful of companies — any issues with these names translates into an issue with index-tracking ETFs. Indiscriminate passive buying can easily turn into indiscriminate passive selling.
Some stress is also becoming apparent in private credit markets, a rapidly expanding sector of non-bank lending. Trailing 12-month default rates have increased steadily through 2025.
Our Trading Strategy
While the bear case is certainly valid, there must always be a larger catalyst that “lights the fuse” for a significant correction. Yes, valuations are problematic, but only if a mean-reversion is caused by an unexpected event. Debt is problematic if a recession triggers job losses. As such, the bearish case relies more on longer term “event risk” that would take some time to mature. This is unlikely to happen during the next couple of months.
The bull case is more relient of technicals, sentiment and liquidity — which are certainly short-term factors. Given the data and dynamics, the most likely near-term outcome is a continued bull market.
We’ll keep exposure diversified for now, and also maintain some cash on hand for dip or breakout buying. As it stands, we’re on track to hit our goals for the year with the Sigma Portfolio. A short term rally and rotation into the end of the year is likely, especially in the Healthcare sector (XLV), which performed well, but recently became oversold. We’ll be looking to add exposure there.
Signal Sigma Research & PRO members will be notified by Trade Alert of any live portfolio changes (if subscribed). If you’re not on this plan yet, you can get a free trial when you join our Society Forum. If you need any help with your trading strategy (or would like to implement one on your account), feel free to reach out!
Disclosures / Disclaimers: This is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this blog post. I currently do not own or plan to own any position, long or short, in the securities mentioned.
I am not a financial advisor licensed in the United States. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject to change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this blog post.
I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter. Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.
I wrote this blog post myself, and it expresses my own opinions. I do not have a business relationship with any company whose stock is mentioned in this blog post. The information in this blog post is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
The primary purpose of this blog post is to share industry expertise and research and receive feedback (confirmation / refutation) regarding my investment theses.