Investment Research Memo 01/26/2026

To: Investment Committee From: Senior Desk Analyst Subject: UPDATED: Market Analysis – The “2022 Fractal,” Bitcoin Lead-Lag & Strategic Timeframes

Analysis updated to include missed macro variables (Japan Yields, Fiscal Deficit), Dow Theory divergences, and specific time-horizon execution strategies.

1. Executive Summary

• Market Bias: Bearish (Short-term volatility/chop expected, followed by a significant leg down).
• The Core Thesis: The market is strictly adhering to the 2022 Fractal, where $BTC leads equity downside. Equities are currently in a “distribution” phase (sideways chop, S&P higher high vs. Nasdaq lower high) before “catching up” to the crypto correction.
• Key Risk/Warning: Government Shutdown (Jan 30 Deadline) and/or Geopolitical Escalation (US/Iran) serving as the catalyst for the breakdown.
• Added Context: A critical divergence has appeared: $VIX rose (+0.37%) alongside the market rally, signaling underlying fear. Additionally, the US Fiscal Deficit ($2T annual deficit, spending up 40% since pandemic and never normalized) provides the fundamental backdrop for the long-term “debt concern” thesis driving Gold/Silver highs.

2. The ‘Alpha’ Logic (The Speaker’s Unique Angle)

The analyst’s primary edge is the Inter-asset Lead-Lag Correlation:

• Mechanism: $BTC is viewed as the leading liquidity indicator. It has already begun its “next leg down.”
• The Fractal: The current setup mirrors January 2022 and the 2021 peak:
  1. $BTC tops and drops.
  2. Equities go sideways/diverge ($SPX makes a marginal new high, $NDX makes a lower high).
  3. Equities eventually break support and join $BTC in a major correction.
• Wyckoff Overlay: The current price action in $SPX and $RUT is identified as a Wyckoff Distribution Pattern (Phase C/D), characterized by a “Upthrust” (false breakout) followed by lower highs. `

[Image of Wyckoff Distribution Schematic] `

• Dow Theory Non-Confirmation: A classic bearish divergence exists where the Transports peaked, but the Dow Jones Industrial Average ($DJI) made a lower high. This non-confirmation often precedes a broader trend reversal.

3. Technical Analysis & Trade Setups

$SPX / $SPY (S&P 500)

• Price Levels:
  • Resistance: Jan 12 Peak, Upper Channel Line (approx. 1% above Oct 29 high).
  • Support: Jan 20 Low (Critical short-term floor), Dec 17 Low, November Low (Major Confirmation Line).
• The Setup:
  • Bearish Rising Wedge Breakdown: Price broke the wedge, and is currently “throwing back” (backtesting) the breakdown level.
  • Gap Fill & Indecision: The recent rally filled the gap from the previous week on a closing basis. The market is now forming “candles of indecision” (potential reversal bars) right at the broken trendline.
  • Divergence: Negative divergence on MACD and Stochastic despite price attempts at highs. The 10-period MA is still above the 20-period, but a cross is imminent if price stalls.
  • `

[Image of Rising Wedge chart pattern] `

• Verdict: Short on rejection at wedge trendline or loss of Jan 20 support.

$NDX / $QQQ (Nasdaq 100)

• Price Levels:
  • Resistance: Previous Gap Fill level (overhead).
  • Support: 10 & 20-day Moving Averages.
• The Setup:
  • Relative Weakness: Unlike $SPX, $NDX is making a Lower High, confirming the 2022 divergence fractal.
  • Momentum: Stochastic rolling over; MACD struggling to reclaim signal line.
  • Broadening Formation: The weekly chart shows a massive Broadening Formation (Megaphone pattern) similar to 2021/2022, suggesting high volatility and a potential move to the lower boundary (April Lows).
• Verdict: Short (High conviction due to relative weakness).

$RUT / $IWM (Russell 2000)

• The Setup:
  • Candlestick Signal: Gravestone Doji formed on Thursday, followed by a Shooting Star on the Weekly timeframe. These are potent reversal signals.
  • Pattern: Identifying a specific Wyckoff distribution structure similar to $BTC’s top.
  • `

[Image of Gravestone Doji candlestick] `

• Verdict: Short (Watch for confirmation close below last week’s low).

$NVDA (Nvidia)

• The Setup:
  • Pattern: Head and Shoulders top formation on the daily.
  • Macro Structure: Massive Broadening Formation on the weekly.
  • Warning: Slamming into major resistance; potential to lead the tech sector down.
• Verdict: Short / Avoid.

$KBE (Banking ETF) & $SMH (Semiconductors)

• The Setup: Both sectors showing Rising Wedges with massive negative divergences on MACD. Both forming potential Head and Shoulders tops.
• Verdict: Bearish (Leading indicators for risk-off).

4. Macro & Fundamental Drivers

• Catalyst Schedule:
  • Wednesday: Fed Interest Rate Decision & Press Conference. Risk: Powell could “move the markets” if he addresses the Fed renovation investigation or signals panic (unlikely to cut rates until market drops).
  • Wednesday (Post-Market): Earnings for $MSFT, $META, $TSLA.
  • Thursday: Earnings for $AAPL (Post-Market), $AMZN (implied). Other Earnings: $BA (Boeing), $UPS, $CAT (Caterpillar) — crucial for industrial health check.
  • Friday: PPI (Wholesale Inflation) data.
  • Jan 30 (Friday Midnight): Government Shutdown Deadline. Odds are “95%” for a shutdown due to DHS funding disputes. Historical stat: Last shutdown, $BTC topped days later and dropped 36%.
• Geopolitics:
  • Iran: High probability of US strike on Iran mentioned (due to protester deaths); “War Premium” may bid up Oil/Gold.
  • Trade War: Trump threatened 100% tariffs on Canada (market shrugged off, but remains a risk).
• Global Macro:
  • Japan Yields: Explicitly noted as “sharply rising,” adding pressure to global bond markets.
  • US Debt: $2T annual deficit + 40% spending hike since pandemic = “Real concerns” about financial system stability.
• Yields ($US10Y): Breaking out to new highs recently; negative correlation to equities remains intact.

5. Scenarios & Invalidations

• Bull Trigger (Invalidation):
  • If $SPX breaks above the Jan 12 High and reclaims the Upper Channel Line of the long-term trend.
  • If $NDX fills overhead gap and sustains a break above the 50-day MA with MACD returning to positive territory.
• Bear Trigger (Confirmation):
  • Immediate: Loss of Jan 20 Lows and Dec 17 Lows on $SPX.
  • Macro: Government Shutdown confirmed + $BTC breaking its recent consolidation support.

6. Strategic Moves (Time-Horizon Analysis)

Short Term (1 Day / Intraday)

• Context: The S&P 500 has filled the gap on a closing basis and is stalling at the broken wedge trendline. The “Easy money” on the bounce is done.
• Recommended Move: Fade the Rally.
  • Action: Look to enter short positions or buy puts if $SPX fails to break above the Monday high.
  • Watch: The 60-minute MACD/Stochastic. If they roll over while price hits the trendline, execute shorts.
  • Avoid: Chasing long positions into the Fed/Earnings volatility.

Mid Term (1 Week)

• Context: Extremely high event risk (Fed, Big Tech Earnings, Gov Shutdown). The market often whipsaws (volatility) before choosing a direction.
• Recommended Move: Defensive Positioning & Volatility Plays.
  • Action: Tighten stops on any remaining longs.
  • Trade Idea: Long Volatility ($VIX calls or Straddles on $SPY). If the shutdown happens Friday night, Monday could open with a severe gap down.
  • Key Level: If $SPX closes below the Jan 20 low, aggressively add to short positions targeting the November lows.

Long Term (1 Month)

• Context: The “2022 Fractal” suggests equities will play catch-up to Bitcoin’s drop. We are expecting the “First Leg Down” in stocks to mirror the “Second Leg Down” in Crypto.
• Recommended Move: Net Short / Heavy Cash / Gold Hedge.
  • Action: Rotate out of high-beta Tech ($NDX, $SMH) and Small Caps ($RUT).
  • Allocation: Overweight Gold ($GLD) and Silver ($SLV) as they are hitting new highs and acting as a hedge against the “financial system concerns” (debt/deficit).
  • Target: Expect $SPX to test the April Lows or the 200-day moving average.

7. Glossary of Financial Jargon

• Rising Wedge: A bearish chart pattern where price makes higher highs and higher lows within a narrowing range; a break of the lower trendline usually signals a reversal.
• Throwback (Backtest): When price breaks a support level (like a trendline), drops, and then rallies back up to touch that line (now resistance) before continuing lower.
• Topping Tail / Shooting Star: A candlestick pattern with a long upper shadow and small body, indicating buyers pushed price up but sellers took control by close; a bearish reversal signal.
• Gap Fill: The theory that price will move to occupy a “gap” (an area where no trading occurred due to a price jump) left on the chart from a previous session.
• Wyckoff Distribution: A market phase where “smart money” institutional investors sell off positions to retail investors before a markdown (price decline).
• Gravestone Doji: A bearish reversal candlestick where the open, low, and close are all near the bottom of the range, with a long upper shadow.

8. Consolidated Watchlist Table