With sell-side optimism around 2026 earnings at a record high, major US equity indices are not too far away from their respective record highs. At the same time, after seven up months in succession, potentially bearish monthly candles have appeared in November and December. If bulls cannot get their act together soon, bears will have the last laugh.
 

At the end of 2025, sell-side optimism for 2026 earnings knew no bounds. As of last Tuesday (30^th), these analysts were expecting S&P 500 companies to bring home $310.85 in operating earnings – a new high and past the $310.02 expected a year ago (Chart 1).

The sell-side does tend to start out exuding a lot of confidence and then gradually lower their numbers as time passes. Their 2026 estimates were indeed revised lower through the middle of last year but only to bottom at $295.32 as of June 27^th.

Around the time 2026 estimates bottomed, the consensus also bottomed for 2025 at $254.55 as of July 10^th. Since then, with 4Q numbers yet to be reported, 2025 has risen to $263.27, which, however, remains well under the $277.86 expected in July last year.

This year’s estimates, however, are at a fresh high, after hitting a low. This on one hand reflects sell-side conviction in their work, on the other hand raises a risk of being pie in the sky.
 

Equities are higher riding the coattails of the prevailing trend of upward revision in expected earnings. This continues to push up the multiples the large cap index is trading at.

At the end of the December quarter, the S&P 500 sported a dividend yield of 1.15 percent. This was the lowest in 25 years. The yield has been under persistent pressure since hitting 1.82 percent in 3Q22; concurrently, it has been lower versus the 10-year treasury yield for five long years (Chart 2). The spread between the two ended 2025 at just over 300 basis points.
 

Since it bottomed last April at 4835, the S&P 500 has come a long way, closing last week at 6858. But it rose as high as 6946 on Boxing Day last year. Bulls were able to eclipse the prior high of 6920 posted on 29 October but not for too long; they lost that high in the very next session, which was last Monday, followed by more downward pressure in the subsequent sessions.

For 10 weeks now, the S&P 500 has struggled at 6920s (Chart 3). Concurrently, horizontal support at 6750s is intact. If this support gets tested, which is where the lower Bollinger band on the daily lies, the 50-day at 6805 would have been breached; the average was lost in the middle of both November and December but was recaptured soon. If the 50-day gets tested soon – likely – this would be a third test over two months.

Amidst this, for the first time since the April bottom, the S&P 500 – after seven up months – closed December lower, albeit by less than four points; a spinning top showed up on the monthly. This follows what looks like a potentially bearish hanging man in November.
 

Some interesting monthly candles have also formed on the Russell 2000; November’s hanging man was followed by December’s shooting star. December, in fact, has the potential to become a massive reversal month, with the small cap index tagging 2596 on the 12^th and finishing the month at 2482, a tad lower than November’s 2500. The Russell 2000 also rallied for seven consecutive months post-April bottom at 1733. It, too, struggled at 2540s for weeks before staging a breakout in September, but small-cap bulls were unable to build on that.

From their perspective, the good thing is that the index remains above 2460s, with the index closing last week at 2508, with a low of 2481 on both Thursday and Friday.

Earlier, in November last year, the Russell 2000 retreated after ticking 2466. Three years before that, in November 2021, it rose to 2459 and then went the other way. On 18 September (this year), those highs were surpassed, but not before a stretched bull-bear tug of war followed around those highs. A breach of 2460s hence will raise the odds that lateral support at 2300 will be tested hurriedly (Chart 4).
 

Tech bulls have their own struggle around a falling trendline from 29 October when the Nasdaq 100 reached an all-time high of 26182. A lower high of 25835 was registered on the 10^th last month; this was followed by 25717 on Boxing Day. Last week, on both Monday and Friday, a lower high of 25598 was posted. The trendline resistance is standing like a fortress, with last week closing at 25206 (Chart 5).

On the monthly, after seven up months in a row post-April trough, a hanging man developed on the Nasdaq 100 in November, and this was a followed by a doji; both were down months, albeit not by a whole lot.
 

If these monthly candles – on all the three indices above – live up to their expectations, with the bulls failing to negate them, equity bears can have a field day in the weeks ahead. And there is no shortage of them.

As a matter of fact, NYSE and Nasdaq short interest hit a fresh record mid-December. On the NYSE, short interest was 19.5 billion, and on the Nasdaq 18.4 billion (Chart 6).

Granted these shorts have been on the wrong side of trade particularly since April, as they have been adding even as the indices pressed higher, failure on the part of longs to force a squeeze can result in shorts having the last laugh.

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