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I have been bullish on stocks since late April 2025. Don and Professor Bierman like to tease me and call me a perma-bull, but the truth is, I am far from that. I like to focus on leadership, cycles, and technical setups. 

Recently, the first two of those have been flashing serious warning signs. This past week, I raised my cash percentage to the highest level since last year's correction. I'm not ready to start pulling the trigger on short positions. But this market's conditions are becoming a lot frothier.

The Divergence Problem
 

Last week, the S&P 500 hit a new all-time high. The Nasdaq, however, hasn't made one since October. That divergence alone should raise some eyebrows. When the broad market is making new highs but the tech-heavy Nasdaq is lagging, it often signals trouble ahead.

To make matters worse, technology was outperforming wildly up until Thursday. Then it faced a sharp reversal, erasing multiple days' worth of gains in a single session. In the process, it completed a lower high. For bulls, that's a concerning technical development.

Earnings Disappointments

Big tech earnings last week left a lot to be desired. Microsoft's results failed to impress investors. Tesla also disappointed. Meta had a nice bounce following its report. But I'd be looking for it to backfill in the coming days as the initial enthusiasm fades.

Here's the bottom line: without the Magnificent 7 leading, this market isn't going anywhere. These mega-cap names have been the engine driving returns for years. When that engine starts sputtering, you have to pay attention.

The Energy Rotation

Then we have crude oil breaking out. This is where the cycle analysis becomes particularly interesting. Energy tends to outperform in the late stages of stock market cycles. It's a classic rotation pattern that has repeated throughout market history.

So while tech is lagging, energy is roaring back to life. That's not a coincidence. This rotation suggests we may be entering a more mature phase of this bull market. Smart money often shifts to energy and commodities as a cycle ages.

What This Means

This is not the sign of a healthy market. It's one where extra prudence should be exercised. I haven't done much shorting in the past year. The conditions simply haven't warranted it. But the time to adjust to an evolving market environment is near.

The warning signs are accumulating. Leadership is narrowing. Rotations are shifting toward late-cycle sectors. None of this guarantees an imminent downturn, but it does suggest the risk-reward balance is changing.

My Expectations

To be clear, I'm not looking for this to devolve into a full-blown bear market. The economic backdrop doesn't support that view. What I am looking for is a run-of-the-mill 8%-15% correction. These pullbacks are normal and healthy in bull markets.

We haven't had a meaningful correction in quite some time. The market is overdue for one. If this scenario pans out, it would be the best buying opportunity of 2026. Corrections create opportunities for those who are prepared.

The Game Plan

For now, I'm raising cash and staying patient. There's no need to be a hero in this environment.

I'll be watching for further deterioration in tech leadership. I'll also be monitoring whether this energy breakout has legs. The key is flexibility. Markets evolve, and our strategies must evolve with them.

When the correction comes, I'll be ready to deploy capital aggressively. Until then, caution is warranted. Get ready.

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