/ November 17 / Weekly Preview
-
Monday:
NY Empire State Manufacturing Index
Fed Speakers
---
Tuesday:
Factory Orders MoM (+1.4% exp.)
ADP Employment Change Weekly
---
Wednesday:
FOMC Minutes
---
Thursday:
Non Farm Payrolls (50K exp.)
Unemployment Rate (4.3% exp.)
Existing Home Sales (4.08M exp.)
---
Friday:
S&P Global Services PMI (54.8 exp.)
-
Monday:
Aramark
---
Tuesday:Home Depot, Inc. (The)
BHP Group Limited
Klarna Group plc
---
Wednesday:
NVIDIA Corporation
Palo Alto Networks, Inc.
Lowe's Companies, Inc.
---
Thursday:
Walmart Inc.
Intuit Inc.
NetEase, Inc.
Ross Stores, Inc.
Veeva Systems Inc.
---
Friday:
BJ's Wholesale Club Holdings, Inc.
Volatility Persists
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
Over the past week, markets went through a sharp and coordinated rotation away from risky high beta assets and into safer, lower volatility names. The move started out as routine profit taking but eventually transformed into a broad risk-off event that covered many Sectors and Factors.
Momentum strategies encountered the first real hurdle in months, as names which propelled the market higher of the past quarters were the hardest hit. Selling pressure was by no means isolated in mega-cap tech, but also spread out to bitcoin (BTC-USD), small caps (IWM), unprofitable tech and retail-favorite stocks.
Relative winners from the rotation were Healthcare (XLV), Energy (XLE) and Staples (XLP), partially due to being less correlated with the market and defensive in nature. High-beta, high-momentum, and growth-at-any-price factors all suffered some of their worst relative performance in months, a reversal that historically occurs at inflection points, not in the middle of a strong bull market.
The risk-reset thesis is confirmed when studying cryptos as relevant proxies for risk appetite and liquidity. When short term funding markets tighten at the margin, it’s speculative and expensive assets which suffer first.
Despite all of the hype and promises of deregulation that followed Trump’s election, cryptos have failed to sustain the all-time highs established in December 2024 (a composite average is presented below, derived from this Watchlist). Bitcoin is today barely positive for the year (+0.68%).
Bitcoin’s recent reversal, mirrors the selloff in high-growth tech, and provides a clear example of “liquidation behavior,” not a fundamental reassessment of AI technology. In a similar fashion, smaller cap stocks (especially unprofitable tech) also dropped more than the S&P 500 in a sign of tightening financial conditions and growing concerns about refinancing risk.
Several risk-off drivers have converged to accelerate the reversal. Positioning in the aforementioned assets was extended, with both the retail crowd and systemic momentum models invested in the same themes (anything involving AI, high beta). Such a concentration always lends itself to sharp reversal conditions, where even a small change in liquidity or sentiment can spark a large pricing change.
Once selling begins and certain thresholds are overstepped, algorithms flip from buying dips to selling weakness, creating a feedback loop. This is reflected as negative GEX across various market instruments. In the Study below, we mapped the total number of stocks with positive short term GEX (lower panel) and times when this number became unusually low (vertical signal bars).
Unless a longer negative GEX condition persists, hitting that low number constitutes a valid buy signal, with 1-Month returns that get close to +3% (on the equally weighted S&P 500). While we’re not exactly there yet, this is certainly a signal worth monitoring.
The market appears to be digesting the reality that AI-related earnings (despite being strong) are failing to keep up with expectations which are priced in to valuations via this “narrative premium”. When expectations become increasingly elevated, constant upside surprises are required to maintain price momentum. We are seeing this dynamic start to break.
Critically, this translates into a rotation / consolidation move, and not a breakdown or collapse. Defensive positions worked well recently, for instance (healthcare, staples, some utilities).
There is likely more work to be done, but we have already made significant progress through the corrective process. With this, let’s review the technical backdrop.
Generally speaking, the technical picture remains constructive this week, despite some persistent breadth issues. On Friday, SPY started with a -1.26% decline out of the gate, but closed nearly flat by the end of the session, rebounding +1.7% at one point. This represents a critical hold of support at the 50-DMA and the M-Trend level, despite the consistent bearish drumbeat of headlines over the week.
The benchmark ETF remains in striking distance of all-time-highs, with all primary DMAs trending up and positive GEX in the medium term. The subtle rise of Stocks in Topping Patterns (bottom chart) is something that we are monitoring, as well as the rise in the VIX.
Market internals remain weak, with a constant drop of stocks trading above all key averages. When associated with markets near all—time highs, these conditions usually precede “events” where an even sharper drop is recorded. While these measures do not mean a crash is imminent, it does suggest investors have become far more cautious with their exposure.
Furthermore, decliners outpaced advancers even on days when the S&P 500 held up. Just 19 stocks hit a new high on Friday, which is a relatively low number compared to the last 2 years. The Study below also illustrates how the rally in 2025 saw far fewer stocks actually hitting all-time-highs, compared to the recent past. This also tends to crowd trades in several winning positions, as opposed to spreading out wins throughout the whole market.
This week, the market will be facing a flood of delayed data which now becomes scheduled for release. We have no idea whether these releases will be correct or meaningfully compromised, requiring revisions. While the government reopening brings relief, many critical datasets may never get fully released.
Against this backdrop, investors are operating with limited information, as the market remains prone to swings. Most likely, it will be NVDA earnings which will become the focal point of the week later on - and the main catalyst.
While the market remains in drawdown mode, our dip-buying model is printing a shaded visual which will result in a buy-signal when it eventually ends.
Our Trading Strategy
The market rotation and sharp reversal results (again) in a volatile trading environment. The danger exists that a more substantial crack can form. For now, our investing directive becomes to protect this year’s profit and diversify as much as possible. The next leg of the market becomes much more unpredictable in this environment.
Nevertheless, the attitude toward risk taking is constructive. There is no reason to become overly defensive or hold too much cash at the moment. Risk just needs to be more evenly spread out or hedged. In client portfolios where we would include 10-11 positions in order to maximize performance, we would include 15-16 in order to limit volatility and reduce risks associated with single positions.
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.