Evidence Brief - 25 Jan 2025
A summary of market leadership, breadth, and positioning risk.
I’m back.
Been a busy start to the year, but let’s get into this week’s recap →
Week Summary
Dominant Narrative
A humbling week of forced liquidation and recovery. Tuesday’s 2%+ drop across indices forced a painful exit from an overleveraged MNQ position on the books, but the week also validated the ERO thesis - it showed exceptional relative strength throughout the carnage. The snap-back rally Wednesday and Friday’s flat close suggest this was a shakeout within the primary uptrend, not a regime change.
Regime Status
Risk-On with Caution - Primary trend remains up, leadership is rotating (not collapsing), breadth is improving, and A/D line at all-time highs. However, inter-market weakness early in the week (credit) hit stocks hard, but rebounded by end of week. Base case remains bullish but preparation beats prediction.
Portfolio Changes
Sold: MNQ futures (overleveraged lesson)
Bought: COHR (stopped out), GOOG, more ERO, UUUU
Current Book: ERO, GOOG, UUUU
Net: Reduced leverage dramatically, concentrated in what’s working
Watch Items
VIX 20-level - rejected mid-week, back to 16s (bullish)
Small-cap underperformance Friday - potential rotation back to large caps
Breadth waning - could push money back into big-tech
January barometer outcome - full month close determines trifecta signal
Forward Implications
The week delivered a painful but necessary lesson on position sizing. ERO’s relative strength (+3% on a -2% day) validates the materials/Latin America thesis. The base case for 2026 remains no imminent bear market - primary trend up, leadership rotating, breadth improving. Focus forward: stay disciplined on risk, press winners (ERO), and avoid chasing the tech bounce until it proves itself. Energy and materials continue to outperform; this is atypical in secular bulls and worth monitoring, but not yet a red flag.
Catch you next week.