The Great Rotation: Why Bitcoin Is About To Wake Up From Its Coma

What is up everyone.

This is The Crypto Fire Macro PRO coming at you to decode the market chaos into plain English. We have tech stocks moving like turtles, commodities going parabolic, and Bitcoin acting like it is stuck in quicksand.

Welcome to another edition stuffed with insights.

We are taking a view from 30,000 feet to look at the global economy and risk assets. We need to figure out what is happening right this second and what comes next.

Raw materials and precious metals are going vertical. Why is that happening?

The US stock market is spreading out, yet Big Tech is getting left in the dust. What is the signal there?

And what is the deal with crypto? Bitcoin $BTC ( ▼ 13.09% ) just cannot seem to find any momentum.

Prices always tell a story.

The market is always sending a message.

And right now those signals are loud and clear.

In today’s edition we will:

• Analyze why the US stock market is widening out and why it matters.

• Look at the massive signal coming from small cap stocks (this is the big one).

• Figure out why the US Dollar is dissolving before our eyes.

• Pinpoint exactly where we are in the business cycle.

• Do a deep investigation into the health of the US economy.

• Assess the next moves for the Federal Reserve as a new Chair gets nominated.

• See how investors are placing their bets right now.

This is a comprehensive look at the drivers moving the money.

We have a mountain of charts to cover (over 70 of them).

So let us jump right in.

THE US STOCK MARKET PARTY IS GETTING BIGGER

The S&P 500 keeps climbing slowly. It feels like a grind.

But do not let the boring surface level action fool you.

There is a massive shift happening underneath.

We are seeing impressive participation across the entire US equity landscape. This is exactly what a healthy market looks like.

My internal "breadth index" tracks eight distinct sectors that are sensitive to risk. This includes groups like semiconductors, small caps, banks, and retail.

Right now? That index is banging against the ceiling. All eight sectors are joining the rally.

Usually, you see market breadth fall apart right before a major crash. That is absolutely not happening here.

When this index is green, good things happen.

The Great Rotation

The major indices like the Nasdaq have felt heavy lately. Why? Because the "Magnificent 7" stocks are tired.

Those seven giants have basically gone nowhere for four months.

Investors are rotating their cash. They are dumping the mega caps and buying everything else.

Specifically, they are buying cyclical stocks.

These are companies that thrive when the economy speeds up. We are talking about industrials, energy, materials, and regional banks.

Boring Stocks Are Sexy Again

Transportation stocks are leading the charge.

Think about trucking, logistics, and railroads. It sounds boring. But this sector is ripping higher.

We recently got a classic "Dow Theory Confirmation."

The Dow Jones Transportation Index just hit a new record high. It finally beat its peak from 2021.

Dow Theory says a bull market is the strongest when both the makers of stuff (industrials) and the movers of stuff (transports) hit new highs together.

History loves this setup.

When Transports hit a major new record, the S&P 500 was higher one year later 16 out of 17 times. The average return was over 12%.

Energy joins the chat.

The energy sector is also breaking out. Historically, when energy shows this kind of strength, the market is higher 100% of the time a year later.

This looks like the start of a fresh economic expansion, not the end of a bull run.

The 2026 Playbook

We are deep in earnings season. The Mag 7 companies are still printing money with huge growth.

But the gap is closing fast.

As we move through 2026, the "other 493" companies in the S&P 500 are expected to triple their growth rate.

For three years, everyone piled into big tech because the real economy was weak. There was no alternative.

Now? We have plenty of alternatives.

2026 will likely be the year the market broadens out completely.

The AI Trade Is shifting

Goldman Sachs notes that investors are looking for the next phase of AI.

The focus is moving away from the companies building the data centers. Now investors want the companies using AI to make money.

Goldman traders like five boring sectors for this:

• Banks

• Retail

• Logistics

• Healthcare

• Restaurants

These firms can use AI to slash costs and boost margins without the massive infrastructure spending.

A Warning On Silver

You probably noticed commodities are flying. Gold and silver have been grabbing headlines.

But be careful.

Silver went vertical recently. It dropped 30% in just a few hours last Friday.

That is a classic sign of a speculation bubble popping.

The volume on the silver ETF (SLV) was insane. It traded nearly as much cash as the SPY ETF. That has only happened once before, back in 2011. And we know how that ended.

This silver rally detached from reality. Vertical charts almost always end in tears.

But Watch The Industrial Metals

While silver is scary, the rest of the commodity complex looks great.

Industrial metals like copper and lithium are just waking up. These are the materials you need for a business cycle expansion.

Bitcoin Is Still Napping

You would think a broadening market and economic growth would be perfect for Bitcoin.

But the orange coin is sluggish.

Why?

Because pure speculative appetite is still low.

My ratio of "speculative stocks" versus "safe stocks" (BUZZ vs SPX) is still quiet. Bitcoin usually follows this ratio.

The macro setup for crypto is perfect. Everything is in place.

Bitcoin is just waiting for the degens to wake up and bring the volume back.

SMALL CAP STOCKS ARE SCREAMING AT US (AND CRYPTO SHOULD LISTEN)

The Russell 2000 $RUT ( 0.0% ) is currently the single most critical chart to watch.

I have been highlighting small cap stocks for months in our PRO Reports. But now is the time to sit up and pay close attention.

Why? Because small caps are sending a massive message.

The price action on the Russell 2000 serves as a giant neon sign telling us exactly where we stand and where we are heading.

Mega cap stocks are largely immune to the "real economy." They can thrive in almost any environment unless growth completely collapses. Many of these giants are effectively "global stocks" rather than American ones.

Small caps are different. They are a pure reflection of the domestic US economy.

These companies are smaller, riskier, and far more sensitive to interest rates, inflation, and growth.

Small caps require a perfect economic cocktail to rally.

When the Russell 2000 rips higher, it signals three specific things:

• The growth outlook is strong.

• The inflation outlook is manageable.

• The general consumer economy is improving.

Right now, the Russell 2000 is smashing through a consolidation zone that has held it back for years.

To me, despite a brief fakeout late in 2025, this looks like a conclusive breakout.

History is on our side

Over the last 40 years, the Russell 2000 has only seen six major breakouts of this magnitude.

Once the breakout happened, the average rally was 49%.

Only one of these six instances was a "false signal" (the early 2000s).

Usually, when the Russell escapes a multiyear slumber, it is the real deal.

This current move is even more significant because the consolidation period was historically long. The Russell was stuck below its 2021 highs for four years.

That makes this breakout act like a tightly coiled spring releasing its energy.

Just look at the biggest breakouts in history:

• 1991: Rallied for 4 years, gaining 180%

• 2004: Rallied for 3 years, gaining 40%

• 2013: Rallied for 2.5 years, gaining 50%

The "K Shaped" Bubble

I have discussed the potential "AI bubble" recently. That is debatable.

But the biggest bubble right now is not AI.

It is the bubble of consensus thinking.

Specifically, the belief that the American economy is shaped like the letter K.

Almost every expert agrees that the "K shaped economy" (rich getting richer, poor getting poorer) is a permanent fact.

But when everyone agrees on something, the market often does the opposite.

The US economy has been resilient. We see a split between "soft data" (people saying they feel bad) and "hard data" (actual spending numbers being strong).

So what happens if the lower half of that "K" starts feeling better?

When consumer sentiment is in the toilet (like it is now), it is actually a statistical signal to be bullish.

The Sentiment Signal

Long periods of miserable consumer sentiment always align with the Russell 2000 doing nothing.

But when the Russell finally breaks out, Consumer Sentiment rises every single time.

On two previous occasions where sentiment was this low, the market upside was massive.

Markets are always whispering secrets to us.

If this Russell 2000 move is legitimate, history suggests consumer vibes are about to improve significantly.

A recovery in consumer confidence changes the entire narrative.

Consider this:

• Analysts have whined about "poor breadth" for years.

• Economists have whined about the split economy for years.

But recent reports show consumer sentiment hitting five month highs. Future expectations are revising up. Inflation expectations are revising down.

The winds are shifting.

Small cap strength is likely the leading indicator that the "real economy" is back.

If history rhymes, we could see sentiment rise all year, small caps outperform, and a virtuous cycle of confidence return.

The Global Context

Previous Russell 2000 rallies all happened during raging global bull markets.

Look at 2013, 2017, and 2021.

Right now, we are in a synchronized global uptrend. International markets like South Korea are surging.

I tracked an index of the largest 40 countries, and it is ripping higher.

What This Means For Crypto

It is time for Bitcoin to put up or shut up.

Every major Russell 2000 breakout in history was followed shortly by a major Bitcoin $BTC ( ▼ 13.09% ) breakout.

The sample size is small, but the correlation is 100% so far.

If the Russell 2000 holds this level and accelerates, it is time for crypto to move.

It is now or never.

If the Russell runs hot and crypto stays frozen, that is a massive red flag. Crypto must perform in this risk on environment.

The Bottom Line

Earnings estimates suggest now is the time for small caps.

Valuations have risen, but they are not stretched like they were in 2021.

Positioning is increasing, but there is still plenty of cash on the sidelines.

Since 2020, massive flows went into large caps while money flowed out of small caps. If even a tiny fraction of that money rotates back, the move will be violent.

The Russell 2000 is the most important chart in the world right now.

If this breakout holds, it is game on.

If it fails, then this entire theory collapses, and we could be looking at a scenario like the year 2000 crash.

Watch the small guys. They are telling the big story.

WHAT ON EARTH IS HAPPENING TO THE GREENBACK?

We always keep a close watch on the dollar relative to foreign currencies because it acts as the master key for global liquidity, financial conditions, and corporate earnings in the States.

Here is the simple rule of thumb. When the dollar gets weaker, risk assets generally perform better.

And wow. The script has flipped dramatically for the dollar $DXY ( 0.0% ) this past week.

It was a total freefall.

If you zoom out, you will see the Dollar Index has plunged to lows we have not seen in years.

So what triggered the drop?

We witnessed a massive shift last Friday involving rumors of a coordinated intervention to save the Japanese yen.

The U.S. Treasury asked the New York Fed to perform a verbal rate check for $USDJPY ( ▼ 0.09% ) with major banks. In the past, this move usually signals that the central bank or government is about to step in.

This potential intervention would likely involve dumping dollars to buy yen. That is naturally bearish for the USD.

This is incredibly rare. It emphasizes that U.S. policymakers are determined to cap the strength of the dollar or perhaps intentionally drive it lower to hit goals like bringing manufacturing jobs back home.

It gives us serious flashbacks to the Plaza Accord of 1985. That was when the biggest economies on the planet shook hands on a deal to devalue the dollar together.

Mike Cahill, a Senior FX Strategist at Goldman Sachs, noted the following:

Here is the kicker. No actual intervention happened yet. Just talking about it caused massive price action.

If they do pull the trigger, nobody knows if it will be the U.S., Japan, or both teams working together.

George Saravelos, the Chief FX Strategist at Deutsche Bank, wrote this:

The mere gossip about intervention crushed the dollar against the yen and almost every other major fiat currency.

Then the dollar took another beating on Tuesday. President Trump spoke about the currency in detail for the first time since taking the oval office.

He revealed that he did not think the value of the dollar had dropped enough. He also criticized Asian nations that he claimed were trying to devalue their own money.

Trump said the following:

You cannot get a clearer signal than that. U.S. policymakers are perfectly happy with a cheaper dollar.

Here is a fresh look at our inverted and advanced DXY rate of change chart with the S&P 500 overlaid on top:

And here it is with Bitcoin:

This inverted dollar chart is hooking upward again. That is generally fantastic news for risk assets of every flavor.

If the DXY keeps sliding, it will likely provide the fuel needed to unlock the next leg up for the markets.

As the dollar faded, dollar denominated global M2 money supply metrics skyrocketed.

We also see the Federal Reserve balance sheet slowly expanding again as they continue with Reserve Management Purchases. In my view, this is not strictly QE, but it counts.

On the margins, this is positive for liquidity.

Private money creation via Bank Credit in the U.S. is accelerating too.

Over in the second largest economy on Earth, the PBOC has started injecting liquidity again after pausing late in 2025. This data comes from CrossBorder Capital.

I expect even more cash injections from the PBOC in 2026 as China tries to drag itself out of a long recession.

THE MONEY PRINTER IS WARMING UP

Financial conditions are getting looser and the trend is not stopping.

The Chicago Fed Financial Conditions Index tracks hundreds of different data points and it keeps dropping lower. In this chart, lower means looser.

We are inching closer and closer to the wild levels of liquidity we saw back in 2021.

As I told you in the last PRO report, bond volatility is absolutely tanking right now. We track this via the MOVE Index.

This is extremely bullish.

Sure, we saw a single day spike on Tuesday, January 20. The markets panicked for a second when Trump started talking about tariffs on Greenland.

But the fear didn't last. The index got crushed back down immediately.

Here is the simple logic you need to know.

When the bond market goes crazy and the MOVE Index is high, liquidity dries up. That scares investors and forces them to sell risk assets.

But when the bond market is calm and the MOVE Index drops, it creates positive liquidity. That is a green light for crypto and other risk assets.

Credit spreads are also telling a great story.

Corporate credit spreads are sitting at multi decade lows.

This tells us there is zero fear among the smart money in the credit markets.

Investors are not pricing in any default risks or liquidity stress right now.

Usually, the market only screams "we have a problem" when you see those credit spreads shoot up vertically.

Now, you might hear a bear case argument here. Some people say incredibly low spreads are actually a bad sign because things are priced for perfection. They argue spreads can’t go any lower, so they have to go up.

That is directionally true and worth watching. However, remember that spreads can stay flat and low for a very long time during a risk on bull market.

To get the real alpha, I look at the spread of spreads.

This metric takes the worst quality junk bonds (Grade C) and subtracts the highest quality investment grade bonds (Triple A).

This chart can still go lower if the junk credit quality improves and closes the gap with the high quality bonds.

Right now, the spread of spreads shows we have not fully priced in a perfect economic environment yet.

If this chart drops back down to the levels we saw in late 2024 or back in 2021, that is when we might start worrying about a top signal.

WHAT STAGE OF THE CYCLE IS THIS?

Analysts love to obsess over the ISM Manufacturing Purchasing Managers Index, or PMI. It serves as their favorite yardstick for tracking the ups and downs of the U.S. economy since manufacturing drives those long term oscillations.

According to that chart, we have not witnessed a proper business cycle expansion since back in the 2020 and 2021 era.

History suggests the best time to hold risk assets is during an upturn. Conversely, market tops usually align with the peak of the business cycle.

But here is the thing. I am starting to doubt the usefulness of the PMI these days.

We are talking about a single survey with a shockingly low number of responses.

If you ask me, and if you look at what the market is actually doing, a robust expansion is already here.

My proprietary Market Implied Business Cycle Index tracks rotation within the U.S. stock market. It signals that the expansion is already speeding down the highway.

Also, take a look at my version of a PMI. This tracks how cyclical American heavyweights in industry and logistics are performing against the S&P 500.

Up and away.

Here are small caps versus large caps. This shows the year over year change for IWM against SPX.

Climbing higher.

The same goes for micro caps versus the big players.

Straight up.

Industrial Production measures the actual output from American factories and mines. It keeps grinding upward.

Durable Goods New Orders are also marching higher. This monthly report covers demand for heavy machinery and electronics. Here is the six month average excluding transportation.

Commodities are finally joining the party too. Just look at the Invesco Commodity Index.

I have argued before that China was the main anchor dragging down the global economy in 2023 and 2024.

China matters because it acts as the factory for the entire world.

The cheat code here is Chinese Government bond yields. They give us the signal for reflation and growth. These yields were nose diving for two years, but they have finally bottomed out and are curling upward.

China is slowly coming back online to drive global growth. Here are those yields shown as a rate of change.

Now let us check some indicators that historically predict the future.

We are deep in a global central bank easing cycle. The number of banks cutting rates is basically maxed out right now.

This measure usually leads the economy by about nine months.

That blue line might dip in 2026. Markets are pricing in rate hikes for places like Australia. That means the easing party might end eventually.

Since this indicator leads by a while, a drop starting in 2026 suggests the cycle peaks sometime in 2027 as a rough guess.

Another crystal ball is the U.S. Treasury yield curve. Usually, a steepening curve means better growth. Here is the spread between the 10 year and 2 year yields pushed forward by nine months.

WHAT IS THE VIBE CHECK ON THE US ECONOMY?

That Q4 2025 growth scare? Consider it officially dead and buried.

By my calculations, the panic ended right before Christmas. Since then, the momentum of the US economy has been revving up like a sports car.

I expect that acceleration to continue, and that is fantastic news for your portfolio.

As I have covered before, the juiciest parts of President Trump’s fiscal policies are finally hitting the market for the first half of 2026.

The money printer is warming up.

According to the smart folks at TS Lombard, we are flipping a switch. We are moving from a tightening environment in 2025 to significant easing in 2026. If tariff rebates actually happen, we could see an even bigger fiscal injection adding another massive chunk to the GDP.

Tax refunds are about to make it rain.

The new tax changes are going to be a huge blessing for consumers, especially for average income earners.

Citadel crunched the numbers and said up to 150 billion dollars in tax refunds could flow directly to working Americans. That is a serious amount of spending power hitting bank accounts very soon.

We already have a guaranteed fiscal boost locked in. But here is the kicker. Trump needs to get his approval ratings up before the midterms. That means the administration is likely to throw even more perks at Main Street to keep the economy running hot.

We have already seen proposals to cap credit card interest rates and lower prescription drug prices. They are trying everything to make life affordable for voters.

The Goldilocks Setup

My call remains the same. I expect higher growth and lower inflation than the consensus predicts for the first half of 2026. This is a Goldilocks regime. It is the perfect environment for risk assets to moon.

That is the trend so far, and I see no reason for it to stop.

What could crash the party?

The only real danger lurking in the shadows is inflation making a comeback.

If the business cycle rips too hard, the economy might start to overheat. I am not talking about the nightmare spikes of 2022, but if prices start trending the wrong way, the Fed might get grumpy.

A hawkish pivot from the Fed would kill our monetary tailwind and potentially stop the rate cutting cycle in its tracks.

Inflation expectations were falling last year, but they have started perking up a little bit recently as growth accelerates. Thankfully they are still generally low.

Crude oil prices are also showing some signs of life again.

However, I doubt inflation will become a major headache until we get much deeper into 2026.

Right now, the market is pricing in about two rate cuts for this year. If inflation stays chill and the labor market softens, we might even get more.

Corporate America is flexing.

Earnings guidance looks stellar. We are currently in one of the strongest periods for corporate resilience in decades if you ignore the weird stimulus era during the pandemic.

The Banks have spoken.

Q4 earnings season is here, and the major US banks have laid their cards on the table.

I love listening to bank earnings. Unlike government data which gets revised constantly, bank numbers are raw and real. They see every swipe and every transaction.

The verdict is unanimous. The economy is resilient. The consumer is strong.

It is a terrible day to be a recession doomer.

Here is the TLDR from the big bank executives:

• Bank of America says consumer spending is up and clients are profitable. They see strong health continuing into 2026.

• Morgan Stanley confirmed the economy is as resilient as ever with capital markets kicking into high gear.

• Wells Fargo noted that income growth is keeping pace with inflation and consumers are handling their debts well.

• Citi highlighted strong capital investment in tech and believes the combination of tax benefits and rate cuts will sustain growth.

Next Step: Keep a close eye on the next CPI print. If it stays cool while growth accelerates, we are officially in the green zone for maximum gains.

WHAT IS HAPPENING AT THE FED?

Jerome Powell sees his time as Federal Reserve Chair expire in May 2026.

President Trump officially announced his plan to nominate Kevin Warsh for the big seat.

Trump hyped the selection with high praise:

“I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best. On top of everything else, he is ‘central casting’, and he will never let you down.”

Warsh is familiar with the building. He sat on the Board of Governors from 2006 to 2011 and served as an economic advisor to Trump in the past.

This is a redemption arc for Warsh. Trump famously passed him over for the top job back in 2017 in favor of Powell.

The choice is fascinating because Warsh historically leans hawkish on monetary policy.

He famously hesitated to support rate cuts while serving on the FOMC board during the Great Financial Crisis of 2007 and 2008. He worried about inflation back then, which turned out to be the wrong call.

However, he flipped the script last year. He aligned with the President and started arguing publicly for lower interest rates.

His new thesis relies heavily on technology. He believes AI acts as a massive and permanent deflationary force. This view suggests the Fed can cut rates without sparking an inflation rebound.

You could describe Warsh as a former hawk who recently morphed into a cautious dove.

Markets now have to figure out how to digest him.

My guess is that Warsh will land on the less dovish side compared to other potential candidates like Hassett or Waller.

We should get more clarity on his actual views in the coming weeks.

We have also entered the era of the Shadow Fed Chair.

Powell still runs the show for two more meetings. Yet markets might ignore him completely. Investors will likely look to Warsh for guidance even though he does not sit in the chair yet.

The big question is loyalty. We do not know how eager Warsh will be to please the President by slashing rates rapidly.

Trump clearly wants aggressive cuts. But will we actually see a Fed fully under his control?

Rate decisions require a majority vote among the 12 members of the FOMC board. Getting a "Trump Fed" that cuts rates on command depends on two major variables:

The administration needs to successfully fire current board member Lisa Cook over alleged mortgage fraud. She denies any wrongdoing, and the Supreme Court is involved. Jerome Powell needs to leave the board entirely. It is rare for a Chair to stay on as a regular member after their term ends, but he has the right to do so. He might stick around just to be a thorn in the side of the administration. Andy Constan from Damped Spring Advisors analyzed the voting board. He split the members into doves, data focused members, and hawks.

You can see the scenarios below.

If Powell and Cook both leave, Trump gets to replace them. The doves would then have the numbers to cut rates deeper than expected regardless of the data.

If Powell and Cook both stay, Warsh faces a gridlock. He will struggle to force cuts unless the economic data screams for them.

POSITIONING AND SENTIMENT

Let us look at the psychology of the market.

We want to see if the majority of indicators are hitting extremes like total fear or pure euphoria.

I prefer to separate this into actual money flows and survey data. I weight the money flows much higher.

Flows

The Goldman Sachs Equity Sentiment Indicator blends nine different positioning measures across institutional, retail, and foreign flows.

This metric stayed super low for huge chunks of 2025.

It jumped quickly into stretched territory last month but immediately cooled back down to neutral.

This indicator currently has plenty of room to run higher.

Now we look at the pros.

First up are the systematic flows. These are the quant funds that trade based on strict rules.

These funds control massive piles of capital.

We saw them deleverage a bit in October and November when volatility spiked.

Right now, systematic positioning sits at neutral. They will likely start buying again in the coming weeks if markets stay calm.

Discretionary institutional investors, or humans making decisions, spent most of last year being underweight and cautious.

Data from Deutsche Bank shows these investors are finally dipping their toes back in. Their participation hit its highest level since March 2025.

However, this chart remains far below the levels seen a year ago. There is still plenty of cash on the sidelines waiting to enter.

Meanwhile, the retail crowd is insatiable.

Everyday investors just want to buy more stocks.

Scott Rubner at Citadel notes that retail flows are a massive and growing force. They buy every dip. They ignore the headlines.

Tuesday, January 20 marked the biggest single day of retail net buying at Citadel Securities since last April.

It is hard to say when retail will run out of ammo, but right now they are still hungry.

Surveys

The money flows look neutral, but the surveys tell a totally different story. Sentiment measures are flirting with euphoria.

The AAII survey of individual investors is the most popular metric here.

The bulls in the AAII survey spiked into extreme optimism in the middle of January before turning slightly lower.

A client poll from Goldman Sachs shows bullishness at rare levels. We only saw this level of optimism three other times in the last decade: late 2017, late 2020, and late 2024.

In two of those past cases, the market took a meaningful hit within three months.

The Global Fund Manager Survey from Bank of America shows cash levels dropping to record lows.

That same survey shows investor sentiment hitting its highest point since July 2021.

So the conclusion depends on what you trust more.

Flows data says we are neutral.

Survey data says we are stretched and potentially euphoric.

I personally put more weight on the flows.

Overall, I would say the market is definitely optimistic but not conclusively euphoric yet.

Finally, we need to check on buybacks.

We are currently in a blackout period during Q4 earnings season. This acts as a headwind for stocks.

Companies have voluntary rules to stop buying their own stock around earnings releases.

This week marked the peak of that blackout according to Tier1 Alpha.

We will slide out of the blackout period through February. We will be completely in the clear by March.

This means the corporate bid returns slowly starting next week. That provides a nice tailwind for equities.

WRAPPING UP

We made it to the end of another massive report.

Here is the summary.

The rally is broadening out. We are seeing widespread cyclical strength, which is a very healthy signal.

I believe 2026 will not be a year dominated by mega cap tech stocks.

Small caps are sending a huge message after breaking out of a four year consolidation. The outlook for growth and the consumer is improving.

History suggests small caps will run for a long time if this breakout holds.

The Dollar is melting down. U.S. policymakers seem happy about it. This is bullish for risk assets.

Financial conditions are loose and getting looser.

The business cycle is expanding according to coincident measures, even if the PMI disagrees. Leading indicators suggest the growth will continue.

The U.S. economy remains incredibly resilient. Momentum is accelerating.

Kevin Warsh is the nominee for Fed Chair. The extent of his dovishness remains the big mystery.

Sentiment indicators are split. Flows are neutral while surveys look hot. We are moving toward euphoria, but I do not think we are there yet.

Here are the top three things to watch:

1. Will the small cap breakout stick? If it does, we are in business. If it fails, that is bad news. 2 The Dollar is falling. This helps risk assets. A further drop is even better, though a crash could eventually scare foreign money away. 3 How will markets react to Warsh? His policy stance is the wildcard.

That is all for this edition. I will be back for another deep dive in March. See you then!

KEY TAKEAWAYS

• Rotation is Real: The market is moving away from the "Mag 7" and into cyclicals and small-caps $IWM ( ▼ 1.41% ) . This is a healthy sign of a broadening economy.

• Dollar Down, Crypto Up: A collapsing dollar $DXY ( 0.0% ) is historically the best rocket fuel for Bitcoin $BTC ( ▼ 13.09% ) . The macro setup is perfect; we are just waiting for the spark.

• Watch the Russell: If the small-cap breakout holds, it confirms the "real economy" is back. This is the green light for risk assets.

• Don't Chase Vertical: Commodities are hot, but parabolic moves like we saw in Silver $XAGUSD ( 0.0% ) usually result in sharp corrections. Stick to the trend, don't chase the pump.

• Policy Shift: With a new Fed Chair nominee and potential currency interventions, the rules of the game are changing to favor a weaker dollar and domestic growth.

⚠️ Disclaimer: This newsletter is for informational purposes only, just for fun and knowledge. This is not investment advice. Your money, your responsibility!