The Week Ahead 2/16/26

Finding Your Edge

We are at a place in the market where a 3 day weekend can bring every bull and bear out of their caves to debate the status of Capex, PE Ratio’s, and Technical indicators to justify a certain positioning. In time’s like these, I think it is best to put the odds in your favor, simplify the seemingly complex, and let the fat pitches come your way.

“An edge is nothing more than an indication of a higher probability of one thing happening over another.”

Market Recap

Last week we started with a sell the rip setup and that is what we got. Friday closed at some key support levels and we are now entering a weaker time of the year in terms of seasonality. Defensive’s have continued to see strength while Software and the MAGS have had weakness. The defensive lean for my thesis has worked well so far in the 1st Half of February and now to execute for the next half.

The key as always now that we are seeing some risk in the market and support tested, will be to have a plan for different scenarios. In Midterm years the path often takes one of two routes, see below. Having a plan for each will be key moving forward.

Index’s

SPY remained boxed into our levels, a loss of the 670 level would setup retesting November lows, a break above 689 would help the bull case.

The QQQ’s are holding on by thread, testing support again to start the week. A break under 600 opens the risk to test the 530’s

Seasonality

We are entering a weaker part of seasonality and the presidential cycle, see below for typical 2nd Half of February. How do you set this up in your favor? Buy puts? Maybe. For me, it is a time where I don’t want to be leveraging up on short dated upside calls, putting the odds in my favor versus playing against them.

Earnings and Catalyst

As far as earnings, I am watching Walmart on Thursday before open and Figma after close on Wednesday for any signs of life in the software name.

Market reaction to Fed Speakers aren’t what they use to be but always something to watch and mark on your calendars, the FOMC minutes on Wednesday is one I always follow closely and can have a reaction, especially with the MOVE index up ticking of late.

As far as data releases, we have Jobless claims, Core PCE, and GDP growth on the docket. In general, the FOMC minutes is my key watchout this week.

Sector of the Week - Financials

Financials are always a key indicator for the current health and stage of the market. Are they signaling the pullback is just getting started for SPY?

While they have been weak of late, they haven’t yet reached my oversold buy zone level.

Watch for a gap fill near 50.86, not too far off.

Stock of the Week

AMZN - Quite oversold on the daily RSI, and nearing the uptrend from the bottom in early 2023.

Going back to putting the odds in your favor, I like to buy any weakness to start the weak in this name.

Final Thoughts

I continue to think we will see a correction in Q1, the Index’s have been incredibly resilient despite weakness in the MAGS and Software names. Some of the heavy weighted names are getting into oversold territory on shorter time frames and could support a bounce but the Q’s need to hold above 600 as a starting point and see the VIX crush back down below 20.

I think if volatility drops to start the week and test that uptrend around 18, that is an ideal spot to add back hedges or play a direction short for a correction, I lean more into the hedge and higher cash level camp versus outright puts. I have pointed out my base thesis several times that I think the market holds up into Valentines Day. Well, that time has now passed.

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