Risk-On Beneath the Noise: Small Caps, Crypto, and the Liquidity Setup
Markets continue to wrestle with short-term volatility, but beneath the surface the data is telling a more constructive story. Across equities, commodities, and crypto, multiple intermarket and sentiment indicators are converging near levels that have historically preceded renewed risk-on phases. This week’s update focuses on separating noise from signal — highlighting where liquidity conditions are improving, where leadership is quietly broadening, and where compression may be setting the stage for the next expansion.
Due to the upcoming holidays, there won’t be a newsletter next week. I will resume the next newsletter after December 29.
1. Liquidity Is Improving — But Volatility Comes First
Macro conditions are shifting from tightening toward expansion, setting the stage for risk assets — but not without turbulence.
S&P 500 (FOMC Liquidity Outlook)
Bull Theory highlights that while the latest FOMC meeting reinforces improving liquidity conditions into 2026, the near term is likely to remain volatile. Liquidity does not arrive smoothly — it often comes with shakeouts that reset leverage before sustained trends resume.
https://twitter.com/i/web/status/1998851700061516053
Crypto (Leverage & Market Maker Volatility)
Sykodelic warns that even as liquidity improves, short-term volatility can remain elevated due to leverage flushes and market structure dynamics. Translation: the macro tailwind can be real while the path remains choppy.
https://twitter.com/i/web/status/1998927367801303050
Bitcoin (BoJ Rate Hikes & Corrections)
AndrewBTC notes Bitcoin corrections have repeatedly coincided with Bank of Japan rate hikes (March 2024, July 2024, January 2025). The key nuance: Bitcoin already fell substantially (roughly $120K to $80K), increasing the odds that much of the risk is priced in.
Section Summary
Liquidity trends remain constructive into 2026, but expect short-term turbulence as leverage resets and policy cross-currents play out.
2. Equity Market Conditions Still Favor Risk-On
Despite pullbacks and sentiment swings, multiple historical studies continue to skew bullish on forward returns.
S&P 500 (ATH Pullback 5–10% + Fast Recovery)
SubuTrade shows that when the S&P 500 makes an all-time high, pulls back 5–10% (like November), and quickly recovers to new highs, forward performance is strong — nearly 70% positive over the next 1–3 months.
https://twitter.com/i/web/status/1999235302288982495
S&P 500 (AAII Bulls > 44% for 2 Weeks)
Subu Trade highlights that when AAII Bulls sentiment stays above 44% for two consecutive weeks, the next 1 year has historically been 100% positive with an average return near +17%.
https://twitter.com/i/web/status/1999100137285763391
S&P 500 (7 Consecutive Up Months)
Ryan Detrick notes the S&P 500 is up 7 months in a row. Historically, the next 1 year is positive about 75% of the time with an average gain around +9%.
https://twitter.com/i/web/status/1998427320483529089
S&P 500 (Within 1% of ATH + Fed Cuts)
Subu Trade shows that when the S&P 500 is within 1% of all-time highs and the Fed cuts rates, the next 1 year has historically been 100% positive with an average return near +15%.
https://twitter.com/i/web/status/1998724165877248008
S&P 500 (VIX -40% in 10 Days)
Market Stats notes the S&P 500 VIX fell more than 40% in 10 days — historically followed by 100% positive outcomes 1 year later, averaging roughly +15%.
https://twitter.com/i/web/status/1998515700890218908
Section Summary
Across multiple independent studies, the weight of historical evidence favors positive forward equity returns after this type of consolidation and sentiment regime.
3. Small Caps & Cyclicals Are Confirming Risk Appetite
Intermarket signals and small-cap breakouts suggest leadership is broadening — a classic risk-on confirmation.
Copper (Copper vs Gold Breakout Setup)
Ryan Detrick flags a potential breakout in Copper versus Gold — a relationship that tends to strengthen when cyclical growth expectations improve (and small caps often benefit next).
https://twitter.com/i/web/status/1999126456698290263
IWN (Multi-Year Cup & Handle Breakout)
JC Parets highlights IWN breaking out from a multi-year cup-and-handle pattern. This supports the idea that risk appetite remains alive — particularly within small-cap value.
https://twitter.com/i/web/status/1998862121107615822
Russell 2000 (New All-Time Highs)
Matthew Hyland notes the Russell 2000 is pushing to new all-time highs — similar to Q4 2020 conditions before a multi-month run.
https://twitter.com/i/web/status/1999279455647289616
Section Summary
Small caps and cyclicals continue to strengthen beneath the surface, reinforcing a broader risk-on backdrop.
4. Bitcoin: Short-Term Stress, Structural Setup
Several internal indicators look washed out — often a precondition for the next expansion phase.
Bitcoin (Funding Rates Turning Negative)
On Chain College shows funding rates flipping negative — a setup previously seen around the August 2024 and April 2025 lows.
https://twitter.com/i/web/status/1998773943398727946
Bitcoin (Weekly RSI at Bear-Market-Like Lows)
Ash Crypto highlights weekly RSI printing levels historically associated with major washouts — conditions that can occur at bull-cycle “reset” points.
https://twitter.com/i/web/status/1998262984830038494
Bitcoin (Chaikin Money Flow at Bear-Market Lows)
AO shows CMF hitting bear-market lows, implying capital outflows may be nearing exhaustion.
https://twitter.com/i/web/status/1998088940193214534
Bitcoin (Gaussian Channel Inflection)
Frontrunnersx cautions the Gaussian Channel is near a make-or-break zone — a reminder that invalidations exist even in constructive regimes.
https://twitter.com/i/web/status/1998699804658909460
Section Summary
Bitcoin’s internals look compressed and washed out — historically a common precursor to renewed upside, while still respecting key inflection levels.
5. Relative Strength: Bitcoin vs Traditional Markets
Cross-asset pairs suggest Bitcoin may be preparing to regain leadership versus major equity benchmarks.
Bitcoin / Nasdaq (Trend Reversal)
Ash Crypto flags BTC/Nasdaq in an uptrend reversal, suggesting Bitcoin may be positioned to outperform large-cap tech.
https://twitter.com/i/web/status/1998486156871352498
Bitcoin / S&P 500 (Historic Relative Lows)
Julius highlights BTC/SPX near historic lows — levels that have often preceded periods of Bitcoin outperformance.
https://twitter.com/i/web/status/1999965153962713368
Section Summary
Relative performance signals are improving for Bitcoin, supporting the case for renewed leadership as conditions stabilize.
6. Ethereum & Altcoins: Early Rotation Signals
Altcoin leadership typically follows Bitcoin stabilization — and several pairs suggest early rotation may be forming.
ETH / BTC (Uptrend Reversal)
Lark Davis highlights ETH/BTC showing an uptrend reversal, suggesting Ethereum could begin outperforming Bitcoin if follow-through continues.
https://twitter.com/i/web/status/1998740124666921378
Altcoins (OTHERS / BTC Relative Strength)
Alex Wacy shows OTHERS/BTC setting up for potential outperformance, matching prior regime patterns that preceded large altcoin advances.
https://twitter.com/i/web/status/1998736912329355467
Altcoins (Altcoin Season Q1 2026 Thesis)
Bull Theory outlines a thesis for altcoin season beginning in Q1 2026 as liquidity expansion becomes more visible across markets.
https://twitter.com/i/web/status/1999487547773469142
Section Summary
ETH and altcoin relative strength setups are forming — consistent with early-stage rotation behavior when liquidity conditions improve.
7. Big Picture Context: Liquidity Over Halving
Macro liquidity remains the dominant driver behind crypto expansions — often more than single-event narratives.
Bitcoin (Halving as Coincidence vs Liquidity Driver)
Shanaka argues that Bitcoin’s parabolic rises are better explained by liquidity cycles than by the halving itself — reframing a popular market narrative.
https://twitter.com/i/web/status/1998599926687924490
Bitcoin & Gold (Parabolic Pattern Comparison)
Merlijn the Trader compares Bitcoin’s structure to Gold’s pattern and suggests a parabolic phase could follow if the analog continues to track.
https://twitter.com/i/web/status/1998784773536493731
Copper/Gold (RSI Lows as Risk Asset “Ignition” Signal)
AO shows Copper/Gold RSI reaching historic lows — a condition that has preceded sharp “risk-on” runs, including parabolic phases in Bitcoin.
https://twitter.com/i/web/status/1999881366201344254
Section Summary
The macro backdrop points back to liquidity as the primary cycle engine, with intermarket analogs suggesting the larger move may still be ahead.
Closing Summary
Short-term volatility can coexist with long-term opportunity. Equities continue to display historically favorable forward-return conditions, small caps and cyclicals are confirming risk appetite, and crypto internals look increasingly like a reset rather than a breakdown. If liquidity continues to improve into 2026, the path of least resistance remains higher — with rotation signals suggesting the market may be moving from stabilization toward expansion.
Indicator Summary Table
| Instrument | Indicator Name | Insight | Source Link |
|---|---|---|---|
| Bitcoin | BTC/SPX Ratio | Historically strong outperformance | Link |
| Bitcoin | BTC/Nasdaq Trend | Relative outperformance | Link |
| Bitcoin | Chaikin Money Flow | Bottoming conditions | Link |
| Bitcoin | Funding Rates | Bullish reversals historically | Link |
| Bitcoin | Gaussian Channel | Risk inflection | Link |
| Bitcoin | Weekly RSI | Bull-cycle lows historically | Link |
| Copper | Copper vs Gold Breakout | Risk-on confirmation | Link |
| Copper | Copper/Gold RSI Extremes | Parabolic precedents | Link |
| Ethereum | ETH/BTC Trend Reversal | Early rotation signal | Link |
| Russell 2000 | ATH Breakout | Multi-month upside | Link |
| S&P 500 | AAII Bulls >44% (2 weeks) | +17% avg (1Y); 100% positive historically | Link |
| S&P 500 | ATH Pullback (5–10%) + Recovery | ~70% positive (1–3M) | Link |
| S&P 500 | Fed Cuts Near ATH (within 1%) | +15% avg (1Y); 100% positive historically | Link |
| S&P 500 | VIX -40% in 10 days | +15% avg (1Y); 100% positive historically | Link |
Large Caps
Here’s the data on altcoin outperformance:
For large caps, here’s the ones that stand out on a long term timeframe:
- WhiteBIT Coin
- BNB
- Bitcoin Cash
Bitcoin Update
Not much has changed from last week as Bitcoin continues sideways and forms a potential bottom. It takes weeks to months for bottoms to form. Bitcoin has been ranging between $88,000 to $95,000. To form a bullish pattern, we need to see Bitcoin reclaim $93,000 on the weekly timeframe. If that fails to hold above $81,000 then the next area would be $74,000-78,000. Despite all the extreme fear in the markets lately, we are still in a bull market as long as Bitcoin is holding above $74,000.
Ethereum Update
Similar to Bitcoin, not much to update as we continue sideways. Ethereum had a rally from $2700 to $3100. It could revisit the lows around $2700 before going back up. If it doesn’t hold there then next area would be $2100-2400.
Solana Update
Similar to Bitcoin, not much to update as we continue sideways. It’s hovering around $120-130. Either it goes sideways here for a bit before going higher or it could go lower to $100-110. Need to see Solana reclaim $160 for any bullish momentum to return.
Sui Update
Sui is still holding above the bottom of the regression channel. It could go sideways here for a bit before going higher. If it can’t hold above 1.35 then next level would be 1.10. For bullish momentum to return, the weekly needs to reclaim $2.00.
Dogecoin Update
Not much to update here either from last week. Dogecoin is hovering around $0.14. I think there’s a good chance it holds here as it’s been using this $0.14 level as support since March 2025. If this fails to hold then it will go down to $0.10-0.12. For bullish momentum to return, we need to see Dogecoin reclaim $0.17.
A rare signal triggered for Dogecoin on the weekly timeframe. Z-score hit historic lows similar to March 2020, June 2022, June 2023 and September 2023.
Pepe Update
Pepe is still holding on and if it can reclaim the 0.000056 level then bullish momentum will return.
Model Portfolio Update
Despite all the fear, this is still a great spot to add to positions. Open positions are -22%.
The overall portfolio performance considering closed positions is roughly a -17% return:
