The Drawback.

What’s goin’ on?

Things are going well, but progress still seems slower than expected. What had been working for the past few years seems to break down, only to suddenly recover. It’s all just so confusing. 

Market Volatility and Institutional Strategies

Welcome back to The Trading Couch after what feels like a long time since we published a standard edition of FTTC. 2025 is here and off to an interesting start, with a new administration, frequent policy changes, new appointees in critical roles, and the long-anticipated effects of easing monetary policy finally showing up in the charts. The first month of the year sets the tone for the year. January has been anything but boring. We’ve got a lot to cover, so let’s dive right in. 

Late last year, we discussed the significance of the presidential election in relation to the institutional business cycle and how it serves as a major catalyst. Financial institutions are always on the lookout for opportunities to accelerate their plans, and big headlines provide the perfect moment to establish new narratives while letting old ones fade. We’ve already seen it all this month—and we’re only a week into the new administration. What a wild ride this is shaping up to be.

In October, we commented on social media that the institutional cycle would continue no matter who won the election. Leading up to the election, all we heard was negative, even aggressive, rhetoric toward China. Sixty percent tariffs!Then, just one week in, we’re suddenly “friendly” with them. How could that be? Weren’t they supposed to be the enemy? We were told their economy was failing, and that the new administration would impose massive tariffs to cripple them. Now? Maybe a 10% tariff by February. Maybe not.

Politicians and Wall Street have always had a close relationship. This administration came in knowing exactly how institutional money was positioned. How else can you explain the immediate policy shifts from what they campaigned on? This happens every election cycle—politicians say what they need to get elected, then meet with their economic advisors, who tell them what the big banks want. Policies adjust accordingly. Politicians, especially Presidents, need Wall Street’s support. Deals are made, and retail investors are the last to know. This cycle will be no different.

This month’s edition of FTTC is titled The Drawback, referencing the trough of a tidal wave. As tidal waves approach land, the tide sometimes recedes dramatically—much further than usual—just before the wave hits. This is known as the drawback. This month, we’ve seen incredible examples of institutions desperately pushing prices down in some of the most sought-after assets. These efforts are typical of the later stages of (re)accumulation periods like the one we’re witnessing now.

Professional money understands what easing monetary policy means for equities, and they’re taking full advantage of it, leveraging their resources until the wave comes in and the tide breaks. Look no further than what just happened with NVDA.

Desperate Times Call for Desperate Measures

This weekly chart was our final view of NVDA from earlier this month when we wrote:

“We’ll watch for signs of a climactic finish, as current volumes haven’t shown evidence of strong buyer activity. Ideally, a push to or slightly below support would trigger a demand reaction, signaling institutional buying and potentially marking the end of this phase.”

We got the climactic event we were looking for—courtesy of a hyped-up headline about, of all things, a Chinese startup. If anyone needed proof of institutions using the media to further their interests, there it is. Once again, we see how effective the institutional business model is when combined with Wall Street’s infinite resources. They just reloaded their positions by scaring retail investors into selling.

The volume speaks for itself—retail investors don’t generate that kind of activity. The timing of the DeepSeek story—released on a Friday, just as the chart was clearly indicating a dip—is another example of Wall Street’s tactics. During late-stage (re)accumulation periods, anything goes. It’s not uncommon for baseless rumors—bankruptcies, SEC investigations, funding rounds—to flood the airwaves and manipulate sentiment.

We’ll be covering re-accumulation structures like this throughout the year as profits are taken while the tidal wave rolls in. Certain sectors will surge as the economic policy shift from September 2024 finally takes effect. As we’ve stated repeatedly, when interest rates fall, fundamental market valuations change. Interest rate-sensitive sectors will feel the impact, and as the market recalibrates, all the boats will rise.

Small Caps and the Institutional Cycle

Risk assets’ longer-term charts are beginning to show signs of impending markup campaigns as longer-term moving averages are being retaken. Very obvious, fully mature institutional bases have been built across multiple sectors, including small caps. This clean weekly chart of Direxion’s Small Cap 3x Bull ETF (TNA) clearly shows the high-volume sideways behavior that is the hallmark of institutional accumulation.

Though it’s difficult to see clearly, there is an inverted head and shoulders pattern present. It’s just very hard to see because institutions have suppressed this sector for so long. The ‘higher for longer’ narrative that Wall St. used as an excuse to keep sectors like small caps flat for so long has caused TNA to form an extremely wide set of shoulders.

The series of higher highs and higher lows is undeniable and appears ready to break out. The seemingly endless 3 years of chop is indicative of professional money compounding in the range and wearing out the retail investors who thought small caps won’t stay down forever. They won’t, but most of the retail community has moved on to chase high flyers like quantum or AI stocks. The constant head fakes and false breakouts (9 of them over almost four years) have created one of the ugliest accumulation structures we’ve evaluated in our 20 years of analysis.

What it lacks in aesthetics, it makes up for with technical signals. There’s a little bit for everyone in this chart: volume spikes where they’re expected, positive divergence, generational volume shelf, and even a false breakdown. There’s no denying that small caps have all the ingredients for a powerful uptrend to emerge. Now is when the patience exerted over the past couple of years for investors that recognize institutional activity pays off.

One of the beauties of trading the institutional cycle is that once you can recognize where the institutions are positioned, dips become opportunities. The anxiety created by the constant headline drama dissipates. Then it becomes a matter of trading execution, which is fairly simple. Everyone has their own style. Find the one that works for you and take advantage of the opportunities that the market provides.

This may look intimidating at first because it is. However, once mastered, it changes everything. These are the entries and exits for swing trades throughout the institutional cycle. We’ll be referencing them moving forward as we continue to focus on how to best trade the cycle this year. For now, consider all the risk-related assets (China, ARKK, small caps, biotechs, etc.) to be in the lower right corner. Most are offering an E1 entry while others are in the E3 zone reflecting the drawback. Remember, each chart needs to be considered individually. It’s time to invest some time investigating where your holdings are in this process and what opportunities are upcoming. It’s time.

How is that affecting things?

Things have improved, and our hard work is starting to pay off. But I’m not sure if the chaos is behind us just yet.

When monetary policy changes, the fundamental valuation of the market changes. Companies’ future revenues become more valuable again, and their prices reflect that. It’s fascinating how the institutional business cycle seems to so closely fit into major policy changes like Covid and the post-Covid inflation/interest rate hike hysteria. Don’t forget, the ‘Fed Pivot’ came a week after Omicron was abruptly introduced the day after Thanksgiving. Holidays are typically low-volume days as many are traveling. If you’re a hedge fund trying to accumulate large exposures in certain sectors, dramatic late-breaking news reactions are great times to move prices. Short-term supply > demand conditions are created, and price drops immediately. Travelers check their positions after their flight to see they’ve stopped out. This is the type of behavior we should expect during periods of trend change. It’s during these periods we should be actively adding/taking swing positions in late-stage accumulation structures. Thankfully, we know them well.

Analyzing the US Dollar Index (DXY) and Monetary Policy

As the market attempts to determine why the Fed used the exact words they did, Wall Street is working overtime. Why do we see such inflated volumes while Jerome Powell is speaking? It’s commonly accepted that ‘Fed days’ produce extreme price swings as the internals also see higher levels of volatility. When you study and follow the institutional business cycle, it’s easier to determine whether these actions in assets like the US Dollar Index ($DXY) are in a problem area. DXY is obviously re-distributing. There isn’t another global pandemic coming anytime soon, and the inflation story is over. We try to take advantage of these days to take swing positions in areas of the market where institutions are already positioned.

When we see all the technical indicators that meet the rules associated with multiple advanced technical theories and it matches up with the obvious institutional accumulation periods, does it really matter what Jerome Powell is saying? Maybe for short-term exposures, but those should be small if held at all. Our preference is to look out for E1 & E3 entries of the graphic above. Those entries will often align with events such as an FOMC meeting. These types of events provide larger interests with a longer leash to take profit and re-acquire positions utilizing dramatic swings.

The advanced technical theories like Elliott Wave and Wyckoff work on any time frame. Monetary policy is so misunderstood; the vast majority doesn’t understand inflation, interest rates, and how their movements only reflect shorter-term movements. These typically produce backtests of broken supply (resistance) lines and/or moving averages. When we know the overall trend is up and monetary policy changes are already favoring a certain side of the trade, deviations from that should be taken advantage of.

Understanding Market Movements with IEF

When you see obvious examples of assets not performing as they should during certain market conditions, it’s safe to say Wall St. is up to something. Remember, the goal is to align with institutional money. If the belly of the curve has ‘fallen back into the creek’, there’s a very good reason for that, and it’s not that a new inflationary period is going to drive interest rates higher. It’s so they can top off their long positions. The accumulation phases from the rotation we covered in Q3’24 are now maturing, and we’ve reached the last point of support (LPS).

It’s important to note there may be more than one LPS. Here, 7-10Y bonds have formed bullish divergence. We also see a massive, institutional base from the volume profile extending from the left. Note the lower volumes in this test compared to the low in Oct.’23 compared to today’s structure. This tells us IEF is being suppressed to negatively impact other areas of the market. How can we tell? It isn’t being accumulated. Institutional money is flowing into higher beta assets that are negatively impacted by the downward pressure high yields creates.

These conditions have been held in contrast to the fundamental economics of the market. There is too much evidence across all risk sectors pointing toward easing monetary policy. We should expect to see bullish divergence when a breakdown isn’t supported by volume. Although the price isn’t rising, it’s flat. This is divergence. Falling relative strength index (RSI) should produce a falling price. If it does not, it’s divergent.

Anytime there’s uncertainty about divergence, check lower time frames. Lower time frames are more sensitive to demand>supply conditions. These types of activities are very bullish signs for equities. It’s important to note these setups are indicative of institutional interest in raising prices. If there was ever any question whether financial institutions are in full control, scroll up and study the NVDA trade. This daily chart is clearly showing the divergence from the falling weekly RSI.

None of these should be surprising to any of our members. We’ve been discussing these trades for a year now. Our first FTTC was published in Feb.’23. Now that we’re seeing obvious signs validating our analysis, it’s time to establish or add to existing positions in the sectors that stand to gain the most from easing monetary policy.

What can we work with? 

I like how this is going finally. I can see improvement and a positive outlook. Being patient has been the key. It’s been frustrating, but I think we’ve had a breakthrough. These may be lasting changes.

These obvious examples of market data providing false signals help institutions’ efforts to create a path of least resistance. In the Institutional cycle entries graphic (above), there are E1 and E2 setups literally everywhere you look in the ‘Growth’ sector. Any asset that has a lot of future earning potential based on their ability to create strong revenues in the future will see their stock prices increase. As bonds go, equities go. Seeing massive accumulation structures in charts such as IEF and TLT is more than just a positive sign. This signals continuation of the secular bull market.

It’s important to note that the wild swings in these assets under heavy accumulation don’t reflect institutions exiting their positions. Retail thinks a test of the recent lows means the previous year’s worth of accumulation is breaking down. Remember, it took months to build the position. If professional money exits a position they’ve been building over a year, a massive volume spike would produce an obvious, long body candle that breaks through all support. Events like a DeepSeek headline when charts like DXY and IEF are at obvious points in their structure is a signal to look for similar turning points in areas most affected by swings in these assets.

Investing in Chinese Markets: YINN, FUTU, BABX

Recognize this setup? Look at the weekly DXY previously shared. Direxion’s Daily China Bull 3x (YINN) looks ready to eat. These almost angry-looking charts have a tendency to produce violent moves. This is what we had in mind in December when we said:

“Institutions have acquired their positions and accumulation should be complete. Larger interests will most likely begin to move prices up and out of this range. It would not be surprising to see news break soon to justify the move. Imagine if the incoming Administration announces an economic deal with China. How would that change things?”

The new administration’s foreign policy changed the moment it began. Suddenly, we have ‘friendly’ relations with China and are pressuring Taiwan. The timing of it couldn’t be more timely. The false breakdown is quickly turning into an LPS. If not now, soon.

When you focus on data rather than the news, these dramatic swings reveal the chart’s position in the cycle. When setups align with our monetary policy analysis, it confirms that this setup should be both obvious and widespread.

Late trend change setups tend to be textbook as mature phases eventually replicate the traditional structures. The narrative has completely changed just in time to bounce off institutional bases like this all-time weekly chart for GraniteShares Long BABA 2x Bull ETF (BABX). It’s good practice to look for leveraged ETFs in the sectors of interest. They make more dramatic moves due to exaggeration of the asset’s price behavior. There’s two days left for this candle to complete. At first glance, the upper wick might be concerning. Are institutions taking profit here?

Analyzing Market Movements on ‘Fed Day’

Lower time frames on days such as ‘Fed Day’ often provide good insights on days like ‘Fed day’. This 2-hour chart shows very tight candles testing the top of the ‘change of character’ (CoC) candle. That’s the long green (white as displayed) candle that price is having trouble penetrating. This is indicative of demand>supply conditions and consistent with easing monetary policy.

Take note, extended hours trading should be considered on these time frames. Scary headlines are often not reflected in extended hours volumes. The support at the top of the CoC wouldn’t be included otherwise. Understanding this makes it easier to buy scary headline days when prices extend away from moving averages. These are the areas where institutions are active, and we need to be too.

Here’s the follow through. Had we not been on the lookout and aware of how Wall St. uses the media to mislead the retail community, we might have been on the wrong side of this trade. Like the rest of the herd that still thinks the Chinese economy is failing.

Asana (ASAN) – A Case Study in Growth Stocks

Once you see it, it’s hard not to. The same setup is seemingly everywhere. All late stage with bullish indicators flashing. Asana is a ‘growth-oriented’ stock, a niche cloud workforce solution management company expected to continue to see adoption of its offering. Fundamentally strong, having never missed their numbers – 16 out of 16. Yet, ASAN is trading below its IPO price. Why? Because the growth sector has been suppressed by restrictive monetary policy.

In an easing policy environment, companies like ASAN’s valuation will more resemble how the market valued their earnings during the Covid bull market.

PayPal (PYPL) – Institutional Validation

When companies the size of PayPal (PYPL) are also displaying the same setup, it’s more than obvious; we’ve got institutional cycle transition analysis correct. This is validation. PYPL reported $7.85B in revenues last quarter, missing their target by $40M or 1.13%. It sold off -5.74%. $40M on a $7.8B number is insignificant, just another example of typical late-stage institutional tactics.

Consider, CRM does roughly $9.3B. PYPL isn’t a start-up. This isn’t a $300M a year growth story. PYPL is the top online payment processor. What do you think a continued movement toward digital payments is going to do for PYPL’s business?

This is how Wall St. never loses. Their ability to control entire markets like bonds by keeping the yield curve inverted for years is eyebrow-raising. The bond market is roughly $50T in outstanding USD invested. The total stock market cap is about $40T. The term ‘more money than god’ applies. Retail investors simply provide exit liquidity.

Roku (ROKU) – Investing in Ugly Charts

Some of the charts aren’t pretty at the moment. That’s the idea, though. Buy when everyone else is selling, and that only happens when the charts look bad. To 99% of the retail investment community, this looks like a really bad chart, something to be avoided.

When it actually is an incredibly bullish chart that is once again ready to advance into the next phase with a massive base to use as support. These are the types of opportunities that are everywhere. We should expect to see widespread, obvious signs of change when institutional business cycles are changing phases. Creeping candles in a tight flag like this are obvious signs.

We could post 50 charts that all look the same in various forms but in the same stage: Early Stage 2 breakouts. The tide is definitely coming in.

Final Thoughts:

The most extensive and elaborately engineered accumulation phases are drawing to an end. It looks like we’re coming out of a recessionary period. We’re not and never were in danger of heading into one all along. The most well-publicized imminent recession of all times proved to be just another false storyline, provided tens of thousands of hours of airtime. Yet, somehow, the institutions have ended up holding massive positions in the sectors of the markets set to benefit the most from expected market conditions. Opportunities to get involved at the accumulation levels don’t occur very often, maybe once in 10 years or so. Most of the individual stock charts are offering great entries/add opportunities. We’ve scaled in long our positions for the cycle.

Futu Holdings (FUTU) – A Conviction Position

We’ll leave you with one of our conviction positions for this cycle. It isn’t often you find a three rising valleys pattern. Rising valleys signal a bullish pattern associated with institutional accumulation. The chopping peaks and valleys allow them to compound, building their long position at the all-time demand line. You never find them back to back. Ever. In 20 years, we’ve never seen one. This one came with 3 false breakdowns as well. The split creek is also rare but common in extended accumulation periods. We’re long.

Disclaimer: Trade Therapy, L.L.C. content is intended for US recipients only and is not directed at UK recipients. Our information and analysis do not constitute an offer or solicitation to buy any security and are not intended as investment advice. Content should be used alongside thorough due diligence and other sources. Opinions and analyses are those of the author at the time of publication and may change without notice. Trade Therapy, L.L.C. and its employees may move in or out of any trades detailed within our content at any time at their discretion. Employees and affiliates of companies mentioned may be customers of Trade Therapy, L.L.C. We strive for transparency and independence, and we believe our material does not present a conflict of interest. All content is for educational purposes only.