My Trading Game Plan Revealed - 01/02/2026: New Year Rally May Mask 20% S&P Risk with NASDAQ Weakness and Rising Yields

Happy New Year and welcome to the first trading week of 2026. As the markets open for a fresh year, a familiar pattern is emerging: an initial surge driven by new capital inflows. In this morning's My Trading Game Plan, Gareth Soloway, Chief Market Strategist at Verified Investing, broke down this phenomenon and contrasted the short-term bullishness with a much more cautious long-term outlook. We'll dive deeper into the critical technical levels facing the major indices, explore the potential for a significant market correction, and analyze the specific patterns shaping opportunities in key sectors like technology and commodities.

The New Year Money Flow Phenomenon

The start of a new year, and a new month, often brings a predictable surge of capital into the markets. As Gareth explained, this isn't random; it's a structural part of the market ecosystem.

"First of the month, first of the year, we know that data shows us investors generally are putting money in. They can put money into their 401ks, they can put it into their IRAs, and that money because of bullish sentiment is likely filtering into the market. That will give the market a bounce for a few trading days…"

This influx creates an initial tailwind, lifting asset prices across the board. We're seeing it today in stocks, cryptocurrencies, and even precious metals. However, the savvy investor knows this is only one part of the equation. The real question is how the larger institutional players react to this retail-driven liquidity. Will they join the buying, or will they use the strength to offload their large positions? This dynamic of retail buying meeting potential institutional selling is the key battleground to watch over the next few trading sessions.

The S&P 500's Date with a 20% Correction

While the short-term picture may be rosy, zooming out to the weekly chart of the S&P 500 reveals a much more precarious situation. A massive, multi-year parallel channel has defined every major market top and bottom. Currently, the index is rapidly approaching the upper boundary of this channel, a level that has historically served as impenetrable resistance.

The math is stark. From current levels, there is approximately 2.3% of potential upside left before the S&P 500 collides with this trendline. The downside, however, is far more substantial. A rejection from this level could trigger a significant corrective move.

"Ultimately, I do think based on all the metrics and the data I'm looking at, we likely will see during this year and potentially in the first half of the year, a sell off of as much as 20% in the S&P 500."

For many, the thought of a 20% drawdown is terrifying. But for the prepared trader, it's the opposite. Gareth emphasized a crucial mindset shift: "I actually love it because volatility and a drawdown in the markets create opportunity. Opportunity for people that are sitting on the sidelines being patient to then deploy capital." This is the essence of professional trading: viewing market dislocations not as crises, but as generational buying opportunities that reward patience and discipline.

A Tale of Two Indices: NASDAQ's Warning Signal

A critical divergence is developing between the broad market and the tech-heavy NASDAQ. While the S&P 500 has been pushing towards its highs, the NASDAQ Composite has shown significant relative weakness, having failed to make a new all-time high since October of last year.

This underperformance is a potential leading indicator. The NASDAQ is currently testing a crucial uptrend line around the 23,100 level. A confirmed break below this line would be a major bearish signal, not just for technology stocks, but for the market as a whole. Historically, weakness in the market's growth engine often precedes a broader economic and market downturn. The question for 2026 is whether tech will resume its leadership role or if its recent sluggishness is the canary in the coal mine for a larger correction.

Reading Between the Lines in the Chip Sector

Nowhere is the battle between bullish narratives and underlying technicals more apparent than in the semiconductor space. Chip stocks are starting the year strong, fueled by a flurry of analyst upgrades. ASML received a "double upgrade," while Micron is benefiting from positive commentary on the memory chip sector.

However, Gareth urged caution and a healthy dose of skepticism. "When you come into a new year… and you see a bunch of analysts upgrading the market… I'm always a little suspect because it's… almost like they're really trying their hardest to get money to flow into these stocks to push it up and then have exit liquidity for the bigger players."

This concept of "exit liquidity" is vital. Institutions holding massive positions need a wave of eager buyers to sell into. Upgrades can help create that wave. Let's look at two specific examples:

• Micron (MU): The stock is gapping up, but the charts suggest a specific pattern may play out. Gareth's thesis is that Micron will likely push just above the psychologically significant $300 level. Big, round numbers often act as magnets for price. Once this level is pierced, the stock becomes vulnerable to a significant reversal. This view is supported by a developing negative divergence on the Relative Strength Index (RSI), a classic warning sign that momentum is waning even as price makes new highs.
• ASML: Despite the upgrade, the chart presents a clear, patient short setup. By connecting the major pivot tops, a powerful resistance trendline emerges. Instead of shorting into the initial gap-up, the disciplined approach is to wait for price to rally into that trendline. A move to that level would offer a high-probability shorting opportunity, aligning with the thesis that this early-year strength is a trap.

The Unseen Risks: Yields and the Dollar

Two of the biggest potential "black swan" events for 2026 are brewing in the macro space, far from the headlines of individual stocks.

First, the 10-year Treasury yield is forming a textbook bull flag pattern. This is a powerful continuation pattern that suggests yields are poised to move higher, directly contradicting the consensus view that rates will fall in 2026. A breakout from this pattern could send the 10-year yield towards 4.4%, putting significant pressure on equity valuations.

Second, the US Dollar is at a historic crossroads. On the monthly chart, a massive bear flag pattern has been forming. More importantly, the dollar is sitting just above a critical uptrend line that dates back to the 2008 financial crisis. A confirmed break of this multi-decade support line would be catastrophic for the dollar's value.

"If this trend line breaks, good night dollar… do I think that it will ultimately start a faster decline? Well, yeah, that's what happens when you break support."

This long-term bearish outlook for the dollar is a primary reason for holding uncorrelated, hard assets like gold as a long-term store of value against inevitable currency debasement.

The Art of Pattern Recognition in Commodities

Technical analysis shines when it reveals repeating patterns that give traders a probabilistic edge. Gareth highlighted two spectacular examples in the energy markets.

• Crude Oil: An almost identical fractal pattern is playing out now compared to a sequence from 2021. The sequence of an up-move, a down-move, a huge pop, a pullback, and a secondary pop is virtually the same. After the pattern completed in 2021, oil trickled down to a base before launching on a 50% rally. If this historical blueprint repeats, oil could be setting up for a move to approximately $85 a barrel. The trade is defined by clear triggers: a breakout above the near-term trendline confirms the pattern, while a break below the $55 support level would negate it.
• Natural Gas: After a massive 95% rally, natural gas has corrected sharply. The next key buy level identified is around the $3.33 mark. What makes this level so powerful is the principle of multi-factor confluence. Not only is it a horizontal support level, but it also aligns almost perfectly with the 78.6% Fibonacci retracement of the prior rally. As Gareth explained, "When you have factors that align, it increases the probability of success… you're adding a secondary layer to that door, which makes it harder to break through and more likely that you're going to bounce."

Conclusion: Navigating a Year of Opportunity

The market in 2026 is setting up to be a year defined by contradiction. A short-term, liquidity-driven bounce is pushing up against a wall of long-term technical resistance. While the crowd chases the initial rally, the charts are flashing warning signs of a potential 20% correction—a move that would present an incredible opportunity for the patient investor.

By looking beyond the headlines and focusing on the data, a clearer picture emerges. The relative weakness in the NASDAQ, the suspicious nature of chip stock upgrades, the looming risks in Treasury yields and the US Dollar, and the stunningly clear patterns in commodities all provide a roadmap for the disciplined trader. The key, as always, is to trade based on probabilities, wait for high-quality setups where multiple factors align, and have the courage and capital ready to act when volatility creates opportunity.