Market Overview: When Santa Doesn't Show Up

Welcome to 2026, where we're kicking things off with the third straight dud for the classical Santa Claus rally period. That's not exactly the holiday cheer investors were hoping for. The Nasdaq took the biggest hit, finishing down 1.52%. The S&P 500 dropped 1.03%, and even the Dow Jones Industrial Average couldn't escape, falling 0.67%.

Here's the thing about failed Santa rallies—they're sometimes ominous. When the market can't rally during what's historically been one of its most reliable periods, it raises questions about what's coming next. Money is starting to flow into defensive sectors, which is basically the market's way of saying it's getting nervous. Any new all-time highs without fresh pro-growth leadership stepping up should be met with healthy skepticism.

On the bright side, if you're into that sort of thing, gold and silver finally pulled back and may have peaked in the near term. Crypto also caught some bids later in the week, showing signs of life after a rough 2025.

Two Stocks Worth Watching

Victoria's Secret: The Comeback Story with 50% Upside

The Setup

Victoria's Secret (VSCO) is a leading specialty retailer focused on women's lingerie, apparel, and beauty products. They operate the iconic Victoria's Secret and PINK brands, and they're expanding into accessible luxury and inclusive sizing. For investors, this means exposure to the rapidly growing intimate apparel and beauty sector, with a focus on brand revitalization, digital innovation, and customer empowerment.

The most recent quarter showed revenue of $1.47 billion, though the company posted a loss of $21.57 million. The valuation is slightly elevated—the P/E ratio sits at 26.32, Price-to-Sales is 0.72, and EV to EBITDA comes in at 13.26.

From a technical perspective, VSCO is forming a textbook bull flag pattern. These are some of the most powerful formations in technical analysis and often lead to explosive moves once they resolve. When you see a stock consolidating gains in a tight flag pattern after a strong move, that's usually a sign that buyers are catching their breath before the next leg up.

The Catalyst Behind the Move

Victoria's Secret is experiencing a genuine brand revival. The highly anticipated return of the Victoria's Secret Fashion Show in 2025 is driving serious consumer excitement and holiday momentum. This iconic event, combined with youth-focused marketing initiatives, is rekindling cultural relevance and boosting traffic across both physical stores and digital channels in what's become an increasingly competitive apparel landscape.

The numbers back up the narrative. Strong Q3 2025 earnings momentum underscores the company's successful turnaround efforts, with net sales advancing 9% year-over-year alongside better-than-expected profitability from reduced promotions and full-price selling. This performance reflects stabilizing core categories and gaining traction in beauty and other franchises, creating a foundation for sustained comparable sales growth into 2026.

Management is confident enough to upgrade full-year guidance, raising outlooks for both earnings and operating income amid disciplined cost management and inventory controls. This positive revision highlights operational improvements that are translating into margin expansion, positioning the company to navigate macroeconomic pressures while capitalizing on seasonal demand.

The strategic focus on omnichannel and customer engagement enhances Victoria's Secret's market resilience. They're blending physical retail experiences with robust e-commerce growth through targeted assortments and inclusive branding. This multi-channel approach is fostering deeper loyalty among diverse demographics, supporting long-term revenue diversification in an evolving retail sector.

Here's something interesting: this is a strong candidate for a short squeeze, with nearly 17% of floated shares being sold short. That's a significant amount of shorts who could be forced to cover if the stock breaks higher.

Analyst sentiment is generally positive. Jeffries rates it a Buy, Telsey Advisory Group has an Outperform rating, while Wells Fargo maintains an Equal-Weight stance.

The Trade

I'm bullish on VSCO above the $46.00-$47.00 range. My upside target is $80.00-$85.00, which represents roughly 50% return potential from current levels.

ASE Technology: Playing the Semiconductor Packaging Boom

The Setup

ASE Technology Holding Co., Ltd. (ASX) is a leading global provider of semiconductor packaging and testing services. They deliver advanced assembly, interconnect materials, and electronic manufacturing solutions for applications in computing, communications, automotive, and AI technologies. For investors, this offers exposure to the rapidly growing semiconductor manufacturing and outsourcing sector with a focus on innovation and supply chain efficiency.

The company posted $168.57 billion in revenue in the last quarter along with $10.87 billion in earnings. That's serious scale.

Valuation is somewhat elevated here. The P/E ratio stands at 32.66, Price-to-Sales is 1.77, and EV to EBITDA is 11.14. You're paying up for quality and growth, but that's not unusual in the semiconductor space right now.

From a technical perspective, ASX is developing a triangle pattern, which often leads to a continuation of the existing trend. And the trend is very clearly up in this stock.

Why This Story Has Legs

ASE Technology is dominating the semiconductor packaging and testing landscape. They're reporting robust monthly revenue growth throughout late 2025, including November revenues up 15.5% year-over-year to $1.9 billion. This surge is driven by exploding demand in advanced testing and assembly for AI, automotive, and high-performance computing applications. This consistent outperformance positions ASE as a key beneficiary of the global chip shortage recovery and escalating electronics integration across industries.

The real growth engine here is advanced packaging. ASE's LEAP (leading edge advanced packaging) segment is projected to scale dramatically, contributing significantly to overall margins. They're tapping into the booming heterogeneous integration market that's essential for next-generation AI accelerators and 5G/6G infrastructure. This creates a high-margin revenue engine in a sector experiencing structural tailwinds that could last for years.

Diversified end-market exposure enhances ASE's resilience and upside potential. They serve computing, communications, industrial, automotive, and server clients worldwide. The company benefits from broad-based recovery in consumer electronics, electric vehicles, and data centers—insulating it from single-sector volatility while capturing value from the ongoing digital transformation across both emerging and developed economies.

Improving gross margins and operational scale underscore ASE's path to enhanced profitability. With IC ATM margins expected to expand amid higher utilization rates and premium pricing for advanced services, ASE is leveraging its Taiwan-based manufacturing leadership to deliver cost efficiencies and stronger earnings conversion in a capital-intensive industry.

Wall Street seems to agree on the opportunity. Both UBS and Goldman Sachs have Buy ratings on the stock.

The Trade

I'm bullish on ASX above the $13.50-$14.00 range. My upside target is $20.00-$21.00, representing approximately 18% return potential.

Market Catalysts for the Week Ahead

As Goes January, So Goes the Year

The January Barometer, popularized by the Stock Trader's Almanac with the adage "as goes January, so goes the year," posits that the S&P 500's performance in January predicts the direction of full-year returns. It's one of those Wall Street seasonal patterns that's been around forever.

Since 1950, this indicator has been accurate about 75-84% of the time. That's actually pretty impressive for a market timing indicator. Positive January months often lead to annual gains averaging around 16-17%, while negative ones correlate with flat or down years.

The January Barometer is often linked to the separate January Effect—a seasonal tendency for stocks, especially small-caps, to rise in January due to tax-loss harvesting and bonus reinvestments. However, the barometer's predictive power has weakened in recent decades amid more efficient markets and dominant macroeconomic drivers overwhelming seasonal patterns.

Still, it remains a watched seasonal pattern, though not a reliable standalone trading strategy. Let's see if stocks can overcome their near-term jitters and start 2026 off on the right foot. A strong January would certainly ease some concerns about that failed Santa rally.

Reading the Sector Rotation Tea Leaves

The sector performance rankings haven't stirred the pot all that much as we come out of the holiday trading season. Healthcare (XLV) was the clear winner in the fourth quarter, and it's not much of a surprise that the equity indices have been sideways for the past three months. When healthcare is leading, it usually means the market is playing defense.

Other defensive sectors like staples (XLP) and utilities (XLU) woefully underperformed in the fourth quarter as well. It's a big reason why the market has been correcting through time instead of price recently. Sideways action can be just as effective at relieving overbought conditions as a sharp pullback.

Technology (XLK) is looking to come back alive here in 2026 after not doing much in the fourth quarter. Basic materials (XLB) have capitalized on the rally in miners, while financials (XLF) continue to benefit from the steepening yield curve.

Looking at the rankings across different timeframes: Energy has led over the past week, Basic Materials over the past three weeks, and Healthcare has dominated both the 13-week and 26-week periods.

The internals are cooling. It's worth keeping in mind if stocks hit a new all-time high soon. New highs without broad participation tend to be less sustainable.

The Most Important Ratio in 2026

There are dozens of ratios to monitor closely, but given the stock market environment we're in now, the ratio between semiconductors (SMH) and the Nasdaq 100 (QQQ) remains the most important one for stocks in 2026.

This is the ratio that has been driving the AI theme of this bull market. As long as chips (SMH) continue to outperform the Nasdaq 100 (QQQ), this bull market can easily continue. There will be bumps along the way, to be sure, but they're dip buying opportunities if anything.

The breakout from the wedge formation earlier in 2025 actually suggests that the outperformance momentum can even accelerate in 2026. If there's a dip in Q1, it could set up a slingshot market by which tech carries the load even more. Think of it as a coiled spring—the longer the consolidation, the more powerful the eventual move.

This ratio is essentially telling us whether the AI trade still has legs. If semiconductors start underperforming the broader tech index, that would be a warning sign that the market's leadership is fracturing. For now, the trend remains intact.

Cryptocurrency: Setting Up for a Rebound?

2025 was one of the worst years for cryptocurrency performance in recent history. That's the bad news. The good news? If anything, this is providing a backdrop for 2026 to be a tremendous year for a rebound in this asset class, especially in the back half of the year.

We're focusing on Ethereum here, which remains stuck below resistance at 3200-3300, but above technical support at 2600-2800. The concern near-term is that it's consolidating its losses, which leaves the door open for a final flush lower.

In that scenario, a drop to 2100-2200 could still play out. But if Ethereum can climb back above 3200-3300, we would have to start considering that the bottom is complete. However, it would still take a rally back above the November 10 high at 3658 to confirm the bear market is over.

Crypto remains one of those asset classes where patience is required. The best moves tend to come after extended periods of consolidation and pain. We're certainly getting the pain part out of the way.