Coiled Spring Capital MW 1/21/26

Introduction

Ever since I first watched Scent of a Woman with Al Pacino, I’ve been enamored with the Tango. So much so, my wife and I danced it for our first dance at our wedding. Yes, it was my idea. Yes, I’m a romantic.

And while the Tango has nothing to do with the macro debacle markets have been forced to navigate lately, watching the TACO trade ignite—again—was a reminder that it really does take two to Tango… and apparently two to TACO.

In typical Trump fashion, he napalmed the airwaves with hardline rhetoric over the weekend, only to pull Denmark to the table shortly thereafter and begin negotiations in Davos. That outcome was arguably the most logical path given his prior playbook around tariffs: escalate loudly, then negotiate. But as always, the bigger lesson remains the same—trying to handicap Trump’s next move with precision is a fool’s errand. We can analyze the reaction, map the scenarios, and define risk—but we have no interest in pretending we can predict the next headline.

However, as we stated explicitly in our weekend report: “it’s not how the week starts, it’s how it ends.” The rationale is simple—daily market gyrations are noisy, but the weekly close offers a clearer read on who controlled the tape: buyers or sellers.

It’s the same reason you can’t declare a boxing match over after one round. You need the full body of work—twelve rounds of exchanging jabs, absorbing pressure, and responding—before the winner is determined. That’s precisely why higher timeframes matter in technical analysis. They cut through the intraday noise and reveal the true trend.

Still, the details of any arrangement with Denmark remain unclear. But for markets, the key point is that escalation appears to have been averted, with Trump cancelling the February 1st tariff deadline.

The result was immediate. After a punishing ~2% decline on Tuesday following the weekend threats, the reversal powered risk assets higher in the strongest advance since August. Tuesday was a reminder that investors remain highly reactive to geopolitical and tariff headlines—and that with equity allocations at record levels, there is very little margin for error. That makes for a difficult tape and reinforces our approach: remain tactical, trade around positions, and let the market confirm.

While the major geopolitical risks may have receded into the background—for now—earnings are set to take center stage. Thus far, results have been solid, but the market’s directional response has been far less encouraging. In many cases, strong prints have been met with selling. For now, the message is clear: good news is being sold.

The question is whether this dynamic persists—or whether sentiment improves as the bulk of companies still slated to report step up to the plate.

One of the major risk factors we highlighted in the last report was yields. On Tuesday, the 10-year yield gapped higher through both the downtrend line (DTL) and the 200-day moving average. From a technical standpoint, that is a bullish development for higher yields and suggests the breakout risk remains real.

That said, it’s difficult to isolate how much of the move was driven by geopolitical headlines versus a broader repricing in rates. Some of the bond selling reversed once the TACO rhetoric reversal hit the tape, but the warning remains intact: this is a market that is still vulnerable to rising yields.

Our ~4.28 threshold was tested and rejected. How yields behave from here—whether they roll back over or reassert the breakout—will be an important tell for the next leg in equities.

After today’s reversal, can we safely say the market is out of the woods—and that it’s back to the regularly scheduled program of fresh all-time highs? Or is this simply another reminder that It Takes Two Too TACO?

Let’s turn to the charts.

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