Market Analysis and Outlook for 2025

The Impact of 2024’s Rotation

This year, we’ll witness the effects of the market rotation observed throughout 2024. Much of last year focused on mega-cap stocks completing the first phase of their breakouts from post-Covid lows. As these campaigns approach initial profit-taking levels, re-accumulation phases are expected to emerge.

Many of the trades we’ve covered are already transitioning into this phase. As institutions realize gains, outdated narratives are often deployed to justify reacquiring positions at lower levels. The result: 2025 is poised to be a year of volatility in former leaders and strong uptrends in former laggards.

Monitoring Key Stocks and Cycles

Our expectations for 2025 remain aligned with the continuation of the cycles we’ve identified.  We’ll be monitoring their progress through the profit taking process identifying key points in the chart identifying opportunities as they arise. We’ll be dissecting price and volume behavior to determine when Wall St. will be preparing to continue their campaigns as the bull market extends to the next leg higher. Until then, we’ll be watching the leaders such as PLTR. 

Palantir is a great example of one of our bullish scenarios extending to higher fibonacci levels. As these mature breakouts hit the last wave of their breakout structure, we’ll be on the lookout for signs of profit taking and weakness. Monitoring these processes can be very lucrative if we can accurately identify the various stages of the process and take advantage of the opportunities they present.

The Rotation to Laggards

2024 saw strong markup stages among market leaders, which are now likely to undergo re-accumulation processes as laggards catch up. The laggards will form breakout structures similar to those of the leaders last year. This trend is expected to define 2025, particularly as interest-rate-sensitive sectors rise to prominence.

A bull market’s strength lies in its breadth—its ability to impact multiple sectors. Consolidation periods provide institutions with opportunities to take profits and rebuild positions, setting the stage for former leaders to rise again. Once this re-accumulation process is complete, the bull market’s full strength will emerge.

Mega-Cap Tech: A 2024 Reflection

The concentration of value in the S&P 500 intensified in 2024, led by NVIDIA (NVDA) and the continuation of the “Magnificent 7” (Mag7) trade. While these imbalances created short-term opportunities, they are unsustainable over the long term. With significant unrealized gains now on the table, profit-taking in the Mag7 stocks is likely to continue or even accelerate.

Signs of Re-Accumulation in the Magnificent 7

In our October coverage of AMZN, we included Direxion’s Mag7 2x Bull fund (QQQU) in our top-down analysis. At the time, sentiment was turning negative, favoring short trades, but we anticipated stabilization and the possibility of further upside.

At the time we noted: 

The rapid decline in Mag7 short interests was the last bit of evidence we needed to set our primary expectation higher. Indeed, Mag7 short interest declined rapidly, confirming our expectation for higher levels. Elliott Wave counts began to materialize and the charts began filling out. 

…and fill out they did. This updated weekly of QQQU clearly shows signs of distribution with several small bodied, high volume candles. The long top wicks indicate the supply>demand condition as buyers are unable to maintain higher levels. We’ll be watching for bearish divergence to develop. 

Early stage re-accumulation is dominated by a supply>demand condition as profit is taken. Large volumes of shares are traded while price maintains a certain level as we’ve seen here for the past three weeks. These periods can last a couple of months or may drag out all year. Those big volume spikes over the past few weeks in this QQQU chart represent fresh powder as institutions are reaping massive profits from the post Covid bull run. As the airwaves were jammed with calls for an imminent recession, Wall St. ran up the Mag7 higher and faster than ever before. Now they’re selling their positions to the chasers thinking they’re just ‘buying the dip’. 

Lagging Sectors Poised for Breakouts

As the mega-cap tech sector processes gains, lagging sectors that maintained their ranges in 2024 are primed for breakouts in 2025. Extended sideways price action during accumulation or distribution phases often precedes sharp upward moves. These “lockout rallies” can occur as professional money drives prices rapidly higher, locking retail investors out of the trade. 

Such violent markup periods are common following prolonged consolidation phases. Retail investors, having abandoned these laggards, set the stage for institutions to move these stocks efficiently to desired profit-taking levels.

These setups are obvious, and anyone familiar with Trade Therapy content should recognize them. The all-time weekly chart for ZM, referenced multiple times in 2024, is a prime example of a massive accumulation base. While there’s still a risk of backtesting the Wyckoff spring representing the all-time low, ZM is one of many promising opportunities in interest rate-sensitive sectors—areas often ridiculed and subjected to extreme negative sentiment.

For instance, Cathie Wood has been relentlessly trolled with memes targeting her investment strategies. However, this negativity sets the perfect stage for institutional money to capitalize o

n initial breakouts from these multi-year bases. Wall Street often creates negative narratives to deter retail investors, a tactic we’ll explore further in our Emerging Markets coverage. 

Stage 2 Breakouts in 2025

2025 will be the year of Stage 2 breakouts for stocks that have remained range-bound in accumulation conditions for several years. These setups, once identified, are easy to spot and have become ubiquitous across interest rate-sensitive sectors.

2024 offered clear examples of such range-bound conditions amid inflation hysteria and rising interest rates. These bottoming structures provided countless Wyckoff spring events providing ideal long entries. Notably, we covered Cathie Wood’s ARKK twice in 2024, which exemplified textbook buying cycles offering late-stage setups.

Indeed, there’s been no shortage of massive, textbook buying cycles offering great later stage setups. Our coverage in early August on PYPL highlighted one of our favorites for the cycle. 

PYPL tested it’s 200WEMA the week of December 9th. We’re still long and continue to plan on holding our position through the cycle.

Swing Trading Opportunities and Institutional Trends

They’re seemingly everywhere as entire sectors of equities that outperformed during Covid were severely punished during the post Covid inflationary market. Those presented were either great examples of the subject we were covering that week or presented a great trade opportunity that we were considering. 

Some of these setups, such as ROKU, should mature into markup campaigns throughout 2025. These setups offer excellent swing trading opportunities as they work through Fibonacci levels and process gains. Moving averages often complement Fibonacci retracements, helping to define shorter-term trades while the larger cycle unfolds.

All of these setups have been shared in our coverage throughout the second half of 2024. One of the advantages of trading the institutional business cycle is its longer term nature. If we know we’ve entered during the accumulation phase that is maturing into a markup period, we know the trend is up. This makes swing trading a lot easier. Buying the dip takes on an entirely different meaning when you’re positioned where institutional money is. It’s fairly safe to assume the professionals aren’t going to take themselves out of the trade. Although they may make the candles look scary and wrap an event like a “hawkish pause” with scary headlines around them, we know the trend is up. Wall Street is just trying to clear out the short term focused profit seekers before advancing prices. They didn’t acquire these positions to sell them before turning a very good profit.

All of these charts are still at great entry levels and we’re either in or considering every one of them. Block (SQ) is still offering a late stage accumulation entry and is still one of our favorite charts for this cycle.

Data-Driven Signals and Risk Sector Rally

Success in trading relies on making judgment calls based on comprehensive data. Our process begins with a top-down approach, ensuring all possible outcomes are reviewed. Over the years, we’ve learned that signals confirmed across multiple timeframes, analytical theories, and related charts represent the strongest opportunities.

Cathie Wood’s ARKK is a textbook setup, reflecting the broader conditions of risk assets. These bases quietly formed during the post-Covid interest rate hysteria, and many are now in late-stage conditions with substantial institutional accumulation. This backdrop supports our expectation of an accelerating “risk-on” rally in 2025.

There’s an almost perfect storm of bullish expectations surrounding the newly elected administration, easing of monetary policies and institutional, stage 1 bases. 

2025 is rare in that there are a wide variety of areas of the market that fall within the growth or ‘risk’ sector. The other areas aren’t hard to find. Most of them look exactly like the charts we’ve already shared. All of them underperformed the Mag7 and the mega cap tech long trade from 2023-2024. 

Some, such as RIVN, present maturing inverse head and shoulders patterns (iH&S). These are the same types of reversal patterns that formed in the Mag7 when they bottomed in Oct.’23.  iH&S are very common in this phase as the changes in monetary policy begin to take hold and demand > supply conditions become commonplace. 

Late-Stage Reversal Patterns Across Markets

These reversal patterns are easy to see and are seemingly everywhere. Late-stage cup-and-handle formations are classic indicators of trend changes that often lead to strong new uptrends. This massive iH&S pattern in BTC has implications across the entire sector as BTC likely re-establishes itself as the ‘bell cow’ for the risk trade. 

We’ve already observed significant breakouts in quantum computing, biotech stocks, and the cryptocurrency sector. These high-timeframe (HTF) structures, evident in past cycles, are progressing well into their markup campaigns.

The Phase E Breakout

Our 2025 outlook anticipates the conclusion of the current phase of accumulation breakouts and the continuation of cycles into markup, or “Phase E.” During this phase, prices accelerate as Wall Street institutions leverage resources to drive up the value of assets accumulated over previous years.

The resulting breakouts should produce the ‘catch up’ trade the ‘risk’ assets appear to be primed for. These setups have already produced several examples of the types of reactions we’re expecting to see throughout the year. 

As bullish as the interest rate sensitive charts are, the mega cap tech and majority of the Mag7 are at best indecisive. Throughout 2024, From The Trading Couch has highlighted the obvious profit taking throughout to the mega cap tech sector. As much as 2025 will be the year of the ‘catch up’ trade in rate sensitive sectors, it will also be about continued re-accumulation in most of the Mag7.

Visualizing Rotation: ARKK vs. SPY

The ARKK/SPY ratio chart provides a clear visual of market rotation. ARKK is an effective representation of the ‘risk’ or growth sector. Notice how the market really went after Cathie hard as the accumulation zone extended far below the previous run’s re-accumulation range. This accumulation phase has been conducted at the previous institutional base level which indicates ARKK’s performance against SPY was at the same levels as 2015-2017. 

This ratio chart also illustrates how market dominance often flips sides. From 2021 to 2023, Wall Street shifted from bullish positioning pre-Covid to bearish strategies during the euphoria of the Covid run. Institutions exploited retail complacency as account balances grew, leading to a lack of risk management and a false sense of market knowledge among retail investors.

This is effectively what happened in 2021. The positioning leading into Covid was extremely bullish. Institutions had completed a two year accumulation period that led into a 2 year re-accumulation period heading into the Covid run. The Covid volume spike actually began the third week in February three weeks before States began issuing Covid lockdown announcements. 

After the big run, Wall St. switched to the short side as the euphoria of the Covid run was still in full effect. This is also by design. Institutions know retail investors become complacent as their account balances grow. They are more likely to buy the dip and neglect risk management as they believe they can do no wrong. Bull markets tend to make retail investors believe they know more than they actually do. It’s easy to do when the market has been in a strong uptrend for several years. Sadly, many don’t figure this out until it’s too late and they’re back to square 1. 

In this chart sequence from April to today, we see the late stage accumulation range completing as a Wyckoff spring was set in August. Suddenly, price is accelerating to the top of the trading range as all of the moving averages begin sloping up and properly aligning by shortest to longest. Notice how the previous cycles performed once similar transitions have occurred (Jan’17, Jun’20). 

Emerging Trends in SPY

The long-term SPY monthly chart underscores the strength of the post-Covid bull market. While the post-Covid correction felt painful, it was a healthy consolidation from a technical perspective. Price pushed off moving averages that had constricted during the correction and has since extended once again.

Adding a Fibonacci retracement to measure the corrective period offers further insight. SPY is now 36 points below the Covid bull market extension from the 200-month exponential moving average and slightly above the 1.618 Fibonacci level. These signals indicate a high likelihood of profit-taking and consolidation in mega-caps heading into 2025. 

This final wave of the impulsive breakout structure exhibits bearish divergence on lower timeframes (weekly), a typical indicator of wave 5 conclusions. Continued re-accumulation in mega-caps is expected through the first quarter or possibly the first half of 2025.

Similar Signals in QQQ

The Nasdaq 100 (QQQ) is in a comparable condition to SPY. Throughout 2024, we anticipated a re-accumulation phase for QQQ. After reaching its all-time supply (resistance) line in May, the expected ABC corrective pattern began with the “yen carry” trade sell-off. However, the second wave (b) failed to form as QQQ continued higher, ultimately invalidating the pattern.

Today, QQQ remains extended above its all-time resistance level and nears the 1.618 Fibonacci level at $548.03. Bearish divergence on both weekly and monthly charts supports the view of re-accumulation. These patterns suggest the completion of the final wave in both short- and long-term structures.

Anticipating Re-Accumulation

In the event we do see re-accumulation develop, it is likely to manifest as a quick, shallow retracement back to previous pivot levels. A backtest of the 200WEMA, as illustrated in this speculative long-term weekly chart, seems reasonable, especially considering the deep retracement seen a couple of years ago.

2025 is expected to start slowly for the major indices and mega-cap stocks, consistent with our commentary in the latter half of 2024. The major indices represent the segments of the market that outperformed during the interest rate hiking period. It’s perfectly logical that institutions will be looking to recognize those gains. As they do, expect to see heightened volatility as we get into the March-June months. Late stage re-accumulation can be very similar to the late stage accumulation phases we’ve seen all year in the interest rate sensitive sectors. We should see the same kind of price behavior as financial institutions rebuild their positions.

Re-Accumulation in Mega Caps

Since July, we’ve anticipated a re-accumulation phase in mega caps, spurred by seasonal and election-related volatility. This volatility provides Wall Street with opportunities to take profits and reload positions. The re-accumulation structures developing now are typical three-wave (ABC) corrective patterns. The post-election rally, extending into December, likely represents the completion of the second (B) wave.

Charts for most of the Mag7 reflect similar setups. The “yen carry” trade initiated a steep pullback (wave A), followed by a post-election rally testing previous highs (wave B). If our hypothesis holds, we should see the final wave of this corrective pattern (wave C) unfold soon. High-volume, potential reversal candles (see inset) lend further credence to this view, as do similar patterns in QQQU, the 2x Mag7 bull ETF.

Case Study: Microsoft and NVIDIA

This longer term weekly chart from July shows our identification of a potential re-accumulation phase developing at the 1.618 fibonacci level. At the time, we noted the presence of negative momentum indicator (RSI) divergence in the vicinity where we should expect the completion of wave V. We also suggested there were no signs of distribution as volume continued to decline. 

Today’s view confirms these observations. The structure has matured, with sideways price action indicative of re-accumulation. As suspected, we have not seen distribution and, so far,  are witnessing nothing more than standard profit taking. Although this is a much more mature re-accumulation structure than most of the Mag7, it is most likely not over as we are still looking for third wave (C) to develop.

This is the setup that leads us to believe the major indices may be off to a slow start in 2025. Almost all of the Mag7 looks almost identical which isn’t surprising as they’re in the same phase of their cycle. Most retail investors don’t know the institutional business cycle exists and, even so, don’t believe it applies to the excessively hyped leaders.

We began mentioning NVDA was possibly setting up for re-accumulation in May. We noticed the extreme negative divergence and the pending completion of the impulsive breakout from the Covid low. At the time, bullish sentiment related to NVDA was at euphoric levels and any consideration of a pullback in semiconductors, not to mention the leader, wasn’t very popular. 

NVDA’s weekly chart from August (above) revealed a corrective pattern similar to MSFT, underscoring its alignment with broader trends in the mega-cap tech sector. Thess patterns form as gains are realized and rotated.

This updated chart is a great example of how Elliott Wave Theory (EWT) counts can evolve over time, particularly at the ending of such a massive run. This is the main reason why EWT should not be used as the lead technical analysis tool. It should be used in conjunction with other theories such as Wyckoff. Remember, creating perfect charts is not the goal. The goal is to identify the institutional cycle and align our investments with theirs. Please note the updated count. 

We’ll be covering NVDA soon and will look at targets for the last leg of this structure. For now, it’s just another datapoint indicating most of the Mag7 and mega caps will most likely be re-accumulating next year. This will most likely be framed by a pause in rate cuts or controversy surrounding the incoming, newly elected Administration. Stay tuned. 

Case Study: Emerging Markets

While we won’t delve into monetary policy here (covered in-depth monthly in From The Trading Couch), it’s worth noting its ongoing impact on valuations in interest rate-sensitive sectors. Emerging markets, in particular, are poised for significant growth in 2025.

Direxion’s Emerging Markets 3x Bull Leveraged ETF (EDC) offers a clear view of these expectations. The weekly chart reveals a large, multi-year institutional base and strong positive divergence. This setup aligns with our broader outlook for interest rate-sensitive and growth sectors, which are primed to benefit as monetary policy shifts take hold.

Trade Therapy was founded to help investors better understand markets, with the goal of augmenting or replacing their current income. Many individuals, particularly in Los Angeles, are already feeling the effects of artificial intelligence on their livelihoods. Our mission is to help them develop technical analysis skills and avoid the common pitfalls retail investors face. A significant challenge is breaking the misconception that news provides an edge—it does not. In fact, it often achieves the opposite by design.

Throughout 2024, we highlighted opportunities in the emerging markets sector, particularly in China. These markets not only offer incredible potential for our members but also serve as a textbook example of Wall Street’s tactics. By relying on data and forming objective opinions based on a weight of evidence, investors can consistently outperform the market. The China trade has been both a profitable venture and an excellent learning experience for many, and we appreciate the positive feedback from our members.

Emerging Markets: A Strong Start

The FXI chart sequence from February to today illustrates a breakout structure currently up +30%, having peaked at +59.1% in October. The trend has shifted, and we expect it to persist throughout 2025. Nearly every chart in the China sector reveals late-stage accumulation structures, mirroring the risk or growth sector charts covered earlier.

When the same signals appear across an entire sector, it’s usually indicative of the institutional business cycle as previously. Headlines often attempt to divert attention while institutions quietly build massive positions. The China trade exemplifies this dynamic, underscoring the importance of recognizing the broader cycles at play.

Lessons from the Institutional Cycle

One of the most challenging lessons for investors is realizing that big banks and the media are not allies. Their primary goal is to convince retail investors to provide liquidity, whether institutions are buying or selling. This requires misleading narratives designed to induce fear or euphoria, often at the expense of retail investors.

Just as in other interest rate sensitive areas of the market, 2025 looks to be a great year for the emerging markets sectors. As we’ve commented throughout the year, these accumulation processes require a tremendous amount of resources and represent a huge investment. It really didn’t matter who won the election, the cycle will go on. 

All of the chart sequences displaying the initial breakouts from their respective accumulation patterns are comparable to the condition of most of the Mag7 coming out of 2022. Only these bases are much larger. The monetary policies we’ve been discussing throughout 2024 in From The Trading Couch add a tailwind to these areas of the market. Although there will be bumps along the way, 2025 should see these tailwinds strengthen and the results for these 2024 laggards should be spectacular as markup campaigns should be everywhere. 

Tesla: Leading the Next Wave

It’s not all bad for the Mag7. TSLA had lagged behind the others until this low in April of 2024.One of the reasons we’re expecting Cathie and ARKK to have such a great year is related to our expectations for TSLA. 

We covered TSLA twice last year. In October, we stated we believe TSLA is entering the most bullish period in it’s history as it begins it’s HTF wave 3. Full Self Driving and RoboTaxi offerings will have a monumental impact on transportation. We may be witnessing the last generation to learn how to drive a car. Ever seen those YouTube videos of kids being asked to use rotary dial telephones? In 20 years, kids will look at cars with steering wheels and pedals in a similar fashion. 

Speculation around the Optimus Humanoid Robot is still in its infancy, and its potential impact on Tesla’s valuation is immeasurable. However, it provides Wall Street with another compelling narrative to push prices higher. While the rest of the Mag7 consolidates, TSLA’s massive base positions it as an attractive option for mega-cap investors seeking new opportunities.

As gains from the Mag7’s post-Covid lows rotate into better prospects, TSLA is likely to attract significant inflows. The retail community, as always, will chase profits, further amplifying this trend. Combined with monetary policy support for risk assets, TSLA is positioned for a very strong 2025.

Market Tactics and Risk Asset Breakouts

As 2025 kicks off, the tactics that financial institutions have used to keep risk assets undervalued and in range-bound conditions will change. It’s not sustainable to keep the US dollar increasing in value and the 10Y yields at elevated levels while we continue to see easing monetary policy conditions. Although we’ll see a lot of hype around the FOMC meetings and interest rate decisions like we always do, the writing is on the wall and policies have already changed.

Redistribution patterns are very similar to accumulation patterns that set a Wyckoff spring. Only, they represent a short position that has been built, and the spring is formed by an upthrust after distribution (UTAD). This indicates, not surprisingly, that Wall Street is positioned for the US dollar to decline in value.

As things stand, our expectations are for the major indices to struggle for at least the first quarter to half of 2025. We are expecting to see the non-sustainable aspects of the market breakdown, which will release all the risk assets to break out into strong uptrends as they catch up to the Mag7. This will add the breadth that the market has been lacking for the past few years. Global monetary policies will continue to ease as they’ll follow the US as they always do. Then we’ll see the true strength of this bull market.

Conclusion

The themes outlined above point to an eventful 2025. With lagging sectors poised for breakouts, mega-caps entering re-accumulation, and emerging markets signaling strong upward momentum, this year will be pivotal for investors. As always, staying aligned with institutional cycles and focusing on data-driven strategies will be key to navigating these opportunities successfully.

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