Breadth Is Speaking: Why the Path of Least Resistance Still Points Higher
As we move deeper into January, markets are sending a consistent message beneath the daily noise. Equity breadth is expanding, liquidity conditions remain supportive, and multiple asset classes are flashing signals that historically align with forward strength rather than fragility. At the same time, it’s important to remember that drawdowns are a normal feature of every calendar year, even in strong uptrends. This issue walks through the setup step by step, starting with equities, moving through liquidity and macro conditions, and finishing with crypto signals that suggest risk appetite is rebuilding.
1. Equity Seasonality and Broad Participation
Strong participation and favorable seasonality continue to reinforce a constructive risk-on backdrop
S&P 500 (Turn-of-Year Barometer)
The S&P 500 rallied more than 4% during the Turn-of-Year window from November 19 to January 19. Historically, when this threshold is met, forward returns have been highly favorable. One year later, the S&P 500 has been positive 95% of the time with an average return of +16%. This supports the idea that the market entered 2026 with positive momentum rather than exhaustion.
NYSE & S&P 500 (Breadth Thrust Signals)
A cluster of breadth thrusts is confirming expanding participation across U.S. equities:
- 70% of NYSE stocks above their 200-day moving averages
1 year later: SPX positive 100% of the time, +18.9% average return - 70.8% of S&P 500 stocks above their 200-day moving averages
1 year later: SPX positive 85% of the time, +12% average return - 250+ NYSE stocks making new 52-week highs
1 year later: SPX positive 88% of the time, +11% average return - S&P 500 Bullish Percent Index crossed above 67%
1 year later: SPX positive 85% of the time, +12% average return
Taken together, this is the kind of participation that usually supports sustained advances, not narrow leadership or late-cycle fragility.
Section Summary
Seasonality and breadth are aligned. When participation expands this broadly, historical outcomes have overwhelmingly favored higher prices over the following year.
2. Drawdowns Are Normal, Not a Warning Sign
Constructive trends do not eliminate volatility
S&P 500 (Historical Drawdowns)
Every calendar year since 1950 has experienced at least one drawdown in the S&P 500, and the average maximum drawdown is roughly 13%. The takeaway is not that 2026 must be volatile, it’s that volatility is normal even when the longer-term trend is healthy.
Section Summary
Pullbacks are part of the process. A normal drawdown inside a constructive year is not a regime shift by itself.
3. Liquidity Remains Supportive
Macro conditions continue to favor risk assets
Global Liquidity (Liquidity vs Assets)
Liquidity remains heavily correlated with equities and shows no signs of topping. Bitcoin has recently diverged from liquidity trends, but historically these gaps often resolve through Bitcoin catching up rather than liquidity rolling over. That leans bullish if liquidity remains steady or continues higher.
Credit Markets (Credit Spreads)
Credit spreads remain healthy, which suggests a risk-on environment and no obvious stress building under the surface of equity markets. When credit is calm, it’s harder to make the case that a major risk-off event is imminent.
Section Summary
Liquidity and credit conditions remain supportive. There is no clear macro stress signal here, which keeps the risk-on thesis intact.
4. Commodities Signal Rotation, Not Risk Off
Gold and silver strength may be reflecting currency and liquidity dynamics more than fear
Gold (6-Month Outperformance vs S&P 500)
Gold has outperformed the S&P 500 for six straight months. Historically, one year later, gold has been positive 88% of the time with an average return of +23%. This kind of strength often shows up when the currency and liquidity backdrop is supportive, and it can coexist with strong equities.
Silver (Volume Breakout vs 2011 High)
Silver volume exceeded the high from May 2011. Large volume expansions can be an early sign that a move is gaining sponsorship and attention, especially when it’s happening alongside broader commodity strength.
Section Summary
Commodity leadership can be a sign of rotation and liquidity dynamics, not necessarily a warning that stocks are about to break down.
5. Internal Market Strength Beneath the Index
Participation matters more than the headline print
S&P 500 (60% Advancers on a Down Day)
The S&P 500 fell -0.5% on the day, but more than 60% of its stocks finished higher. Historically, one year later, the S&P 500 has been positive 86% of the time with an average return of +16%. This kind of internal strength often looks like accumulation rather than distribution.
Section Summary
When the majority of stocks rise on a down index day, it often signals underlying demand that doesn’t show up in the headline.
6. Crypto Signals Are Aligning
Breadth, positioning, and leverage dynamics favor upside if liquidity stays supportive
Top 200 Crypto Index (365-Day New Lows Extreme)
The Top 200 Crypto Index hit an extreme on the 365-day New Lows indicator in December, a level only exceeded twice before: Q1 2019 and Q3 2022. Combined with strong breadth and liquidity trending higher, this setup supports the idea that a strong rally often follows these types of washed-out breadth readings.
Bitcoin (Short Leverage vs High-Conviction Buyers)
Recent price action appears influenced by short-side leverage meeting high-conviction buyers. When shorts lean too far and demand absorbs supply, it can set up the conditions for a squeeze as price stabilizes and starts to move higher.
Bitcoin (Open Interest vs 180-Day EMA Retest)
Bitcoin open interest is retesting the 180-day EMA. If it holds as support, it strengthens the case that the leverage cycle is rebuilding in a constructive way, which has historically aligned with local lows and subsequent rallies.
Section Summary
Crypto breadth and positioning are improving at the same time as liquidity remains constructive. If Bitcoin starts re-aligning with liquidity, the setup favors continuation rather than prolonged divergence.
7. Policy and Currency Backdrop
Dollar weakness can support risk assets, but the longer-term risks still matter
U.S. Dollar (Policy and Liquidity Outlook)
Recent Fed-related developments may point toward further U.S. dollar weakness, which is often bullish for gold, equities, and crypto. The caution is that certain policy parallels to the Nixon era include the risk of inflation re-accelerating and the possibility of a later-stage market accident. The near-term impulse can be supportive even if the longer-term policy path gets messy.
Section Summary
Near-term conditions still lean supportive for risk assets, while longer-term policy risks are worth tracking in the background.
Closing Summary
The common thread across equities, commodities, and crypto is improving participation with supportive liquidity. Breadth thrusts and strong internals argue against a fragile equity tape, while calm credit spreads reinforce a risk-on environment. In crypto, washed-out breadth extremes and leverage dynamics point to a setup where upside can accelerate quickly if Bitcoin starts catching up to liquidity. None of this removes the reality that 2026 will likely include normal drawdowns, but the weight of the evidence still favors continuation rather than contraction.
Indicator Summary Table
| Instrument | Indicator Name | Insight | Source Link |
|---|---|---|---|
| Bitcoin | Open Interest vs 180-Day EMA Retest | If OI holds the 180-day EMA as support, it strengthens the case for a rally to follow. | Altcoin Screener |
| Bitcoin | Short Leverage vs High-Conviction Buyers | Short-side leverage meeting strong demand increases the odds of a squeeze if price stabilizes. | https://x.com/_checkonchain/status/2011716156491776210?s=20 |
| Credit Markets | Credit Spreads | Healthy spreads suggest risk-on conditions and no obvious equity stress signal. | https://x.com/JC_ParetsX/status/2012870779965210741?s=20 |
| Global Liquidity | Liquidity vs Assets | No signs of liquidity topping; Bitcoin divergence more likely resolves via catch-up. | https://x.com/BittelJulien/status/2011786805100601815?s=20 |
| Gold | 6-Month Outperformance vs S&P 500 | Gold outperformed stocks for 6 straight months; historically 1Y later gold is often higher. | https://x.com/SubuTrade/status/2010702602640499196?s=20 |
| NYSE & S&P 500 | Breadth Thrust Signals | Multiple breadth thrust measures point to broad participation and favorable 1Y outcomes. | https://x.com/TheMarketStats/status/2012237105150546086?s=20 |
| S&P 500 | Historical Drawdowns | Drawdowns happen every year; average max drawdown ~13% since 1950. | https://x.com/PeterMallouk/status/2011800789644394502?s=20 |
| S&P 500 | Turn-of-Year Barometer | +4% TOY rally historically leads to strong 1Y outcomes (high win-rate, strong average return). | https://x.com/TheMarketStats/status/2012555487884026064?s=20 |
| S&P 500 | 60% Advancers on a Down Day | Internal strength despite index decline often aligns with accumulation and positive 1Y returns. | https://x.com/SubuTrade/status/2011549776547102768?s=20 |
| Silver | Volume Breakout vs 2011 High | Volume exceeding 2011 highs can signal strengthening trend sponsorship. | https://x.com/SubuTrade/status/2011570272000749789?s=20 |
| Top 200 Crypto Index | 365-Day New Lows Extreme | December NL extreme matched rare historical washouts that preceded strong rallies. | https://x.com/Jamie1Coutts/status/2011268363092472300?s=20 |
| U.S. Dollar | Policy and Liquidity Outlook | Potential USD weakness supports risk assets near-term, with longer-term inflation/policy risks to monitor. | https://x.com/BullTheoryio/status/2010773267226022169?s=20 |
Large Caps
Here’s the sample 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 the last newsletter as Bitcoin continues sideways and forms a potential bottom. The bullish momentum seems to have faded for now and the next area looks to be around $85,000. If that doesn’t hold then it looks like there could be a sweep of the lows to $78,000 which had major support in early 2025.
Ethereum Update
Similar to Bitcoin, the bullish momentum has stalled for now but all hope is not lost. I would like to see it reclaim $3500 to confirm any continued upside. The other scenario is it continues sideways and 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 Ethereum, Solana is taking a break from bullish momentum and is going sideways instead. I would like to see it get above $150-160 for bullish continuation. 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. Since it has been going sideways for nearly 2 months, I would update my level for bullish momentum to return when the weekly reclaims $1.80. This structure looks similar to July-August 2024.
Dogecoin Update
Dogecoin is retesting the $0.12 level. For bullish momentum to return, we need to see Dogecoin reclaim $0.17.
Pepe Update
Pepe needs to hold this level otherwise it looks like it will go back to range lows around 0.00004.
Model Portfolio Update
Despite all the fear, this is still a great spot to add to positions. Open positions are -25%.
The overall portfolio performance considering closed positions is roughly a -19% return:
