After three weeks of conflicting
signals, the sector and asset maps now both read RISK-OFF. All four bond funds
moved into Leading against world stocks, broadening the defensive rotation
beyond sectors. The shift raises the historical drawdown risk level.
Last Week’s Watchlist: Results
1. Tech and communications: XLK weakened further; XLC rebounded but
remained Lagging, with momentum at 99.2.
2. Financials and materials: Both held Leading; financials
strengthened.
3. SPY and bonds: All four bond funds entered Leading. SPY
stayed Leading, but momentum eased to 100.2.
4. Taiwan and Japan: Both remained Lagging as chip-market weakness
spread across Asia.
5. 10-year Treasury yield: Stayed below 5%, closing at 4.86%.
The week
The S&P 500 fell 2.7%, the
Nasdaq 3.4% and the Dow 0.9%, with losses concentrated on Thursday: SPY dropped
4.4%, QQQ 6.5% and the VIX jumped to 28.18. Friday’s modest rebound left SPY at
735.29, roughly 1% above its 200-day average.
Semiconductors and energy bore the
brunt of the selling. SMH lost 11.2%, Nvidia 8.8% and Tesla 10.4%; oil fell from
104.12 to 90.83. Amazon’s 7.9% gain supported discretionary stocks. Gold, the
dollar and Treasuries provided relative shelter, while Bitcoin fell 2.2%.
The week in one table
|
Sectors
|
|
Asset classes
|
|
World markets
|
|
|
Communications (XLC)
|
+4.9%
|
Gold (GLD)
|
+4.7%
|
India (INDA)
|
+6.6%
|
|
Discretionary (XLY)
|
+1.9%
|
Dollar (UUP)
|
+0.4%
|
China (FXI)
|
+5.7%
|
|
Real estate (XLRE)
|
+1.9%
|
Corporate bonds (LQD)
|
+0.2%
|
Hong Kong (EWH)
|
+3.6%
|
|
Financials (XLF)
|
+1.2%
|
Long Treasuries (TLT)
|
+0.1%
|
France (EWQ)
|
+1.5%
|
|
Staples (XLP)
|
+0.7%
|
7–10y Treasuries (IEF)
|
+0.1%
|
Germany (EWG)
|
−0.7%
|
|
Health care (XLV)
|
0.0%
|
High yield (HYG)
|
−0.3%
|
UK (EWU)
|
−1.3%
|
|
Utilities (XLU)
|
−0.7%
|
Developed ex-US (EFA)
|
−1.4%
|
US (SPY)
|
−2.7%
|
|
Materials (XLB)
|
−1.5%
|
Small caps (IWM)
|
−2.0%
|
Emerging (EEM)
|
−2.8%
|
|
Industrials (XLI)
|
−2.8%
|
US stocks (SPY)
|
−2.7%
|
Japan (EWJ)
|
−5.0%
|
|
Tech (XLK)
|
−8.2%
|
Emerging (EEM)
|
−2.8%
|
Korea (EWY)
|
−10.4%
|
|
Energy (XLE)
|
−12.0%
|
Commodities (DBC)
|
−6.2%
|
Taiwan (EWT)
|
−11.7%
|
Friday Nov 6 close against Friday
Oct 30 close. World stocks (ACWI): −2.4%.
Rotation Signals
Map 1: sectors against the S&P 500
RISK-OFF for a fourth week.
Defensive leadership persists despite seven sectors reaching Leading. Tech
remains weak; communications is recovering. Energy slipped to Weakening, while
discretionary, utilities and real estate entered Leading.
Map 2: asset classes against world stocks
RISK-OFF, newly changed from
RISK-ON, FADING. Treasuries, corporate bonds and high yield entered Leading;
commodities moved to Weakening. SPY still leads world stocks, but its momentum
is barely above the 100 threshold.
Map 3: the world's markets against world stocks
This map tracks regional
leadership, not risk appetite. China, Hong Kong and India lead, while Japan,
Korea and Taiwan lag—a split between recovering Asian markets and chip
exporters. Germany also entered Leading.
Two more maps: breadth and factors
Mid caps joined the equal-weight
S&P 500 in Leading; the Nasdaq-100 and mega caps remain Lagging. Quality,
low volatility, value and dividends lead high beta and momentum. The factor read
remains RISK-OFF for a fourth week.
Risk Context: Higher Odds, Not a Forecast
The maps measure relative
leadership and risk appetite. Testing did not show that quadrant positions
reliably identified the next outperformer. The table below summarizes how often
a 10% SPY decline followed each historical risk reading.
How often a 10% drop followed
|
Read
|
Sectors, 1999–2026
|
Assets, 2008–2026
|
|
RISK-ON
|
1 in 12
|
1 in 15
|
|
RISK-ON, FADING
|
1 in 14
|
1 in 46
|
|
RISK-OFF
|
1 in 6
|
1 in 6
|
|
RISK-OFF, BOUNCING
|
1 in 4
|
1 in 5
|
|
All weeks
|
1 in 8
|
1 in 10
|
The table measures how often SPY
closed at least 10% below a given week’s closing price at any weekly close
during the following 13 weeks. Each observation uses that starting week’s close
as the reference—not a subsequent market peak.
RISK-OFF, BOUNCING recorded the highest historical frequency
of these declines. This reading means offensive sectors are beginning to
recover relative to defensive sectors but still trail them overall. An early
rebound therefore did not necessarily signal that the risk had passed. If the
sector map shifts to this reading while the asset map remains defensive,
concern would increase.
Since 2008, SPY closed at least 10%
below its starting weekly close within the next 13 weeks after roughly 1 in 10 observations
when the sector map was defensive but the asset map was not. When both maps were
defensive, the frequency was roughly 1 in 5. This week, the asset map joined
the sector map in RISK-OFF, placing the readings in the historically
higher-risk group.
Higher historical risk is not a
prediction of a decline: four out of five observations with both maps defensive
were not followed by a 10% drop under this measure. A shorter-term rebound is
also possible. In a separate historical comparison of similar one-day sell-offs
occurring while SPY was above its 200-day moving average, SPY was higher one
month later in 12 of 16 cases. The comparisons address different outcomes—a
decline at any weekly close within 13 weeks versus the price one month
later—and should not be treated as competing forecasts.
Next Friday’s Watchlist
1. XLC and XLK: XLC momentum above 100 would move it to
Improving; a turn in XLK momentum from 97.9 would suggest easing selling
pressure. Both reaching Improving would reduce concern.
2. SPY: Momentum below 100 would move it to Weakening against
world stocks.
3. Bonds: A second week in Leading would sustain the defensive
shift; falling back below 100 on RS-Ratio would weaken it.
4. XLE and DBC: Further deterioration would extend the energy
and commodity weakness.
Reference Data: Weekly Rotation Readings
Values are RS-Ratio / RS-Momentum.
Detailed weekly changes appear below; definitions follow the tables.
Sectors against SPY: RISK-OFF → RISK-OFF
|
|
Week 44
|
Week 45
|
Quadrant
|
|
XLV health care
|
102.6 / 102.2
|
102.8 / 101.8
|
Leading
|
|
XLP staples
|
101.6 / 102.1
|
102.4 / 101.9
|
Leading
|
|
XLF financials
|
100.1 / 100.1
|
101.2 / 101.4
|
Leading
|
|
XLB materials
|
100.2 / 101.6
|
100.9 / 101.9
|
Leading
|
|
XLY discretionary
|
99.6 / 102.1
|
100.8 / 102.4
|
Improving → Leading
|
|
XLU utilities
|
99.6 / 102.1
|
100.0 / 101.9
|
Improving → Leading
|
|
XLRE real estate
|
99.2 / 102.0
|
100.0 / 102.2
|
Improving → Leading
|
|
XLE energy
|
102.2 / 101.3
|
101.3 / 99.2
|
Leading → Weakening
|
|
XLI industrials
|
98.6 / 101.4
|
98.8 / 102.0
|
Improving
|
|
XLC communications
|
96.9 / 97.4
|
98.1 / 99.2
|
Lagging
|
|
XLK tech
|
99.1 / 98.3
|
97.9 / 97.9
|
Lagging
|
Asset classes against ACWI: RISK-ON, FADING →
RISK-OFF
|
|
Week 44
|
Week 45
|
Quadrant
|
|
UUP dollar
|
101.7 / 101.5
|
102.2 / 101.6
|
Leading
|
|
SPY US stocks
|
102.1 / 100.8
|
101.6 / 100.2
|
Leading
|
|
IEF 7–10y Treasuries
|
99.8 / 102.3
|
100.5 / 102.2
|
Improving → Leading
|
|
TLT long Treasuries
|
99.7 / 102.3
|
100.3 / 102.1
|
Improving → Leading
|
|
LQD corporate bonds
|
99.6 / 102.3
|
100.3 / 102.3
|
Improving → Leading
|
|
HYG high yield
|
99.4 / 102.2
|
100.1 / 102.4
|
Improving → Leading
|
|
DBC commodities
|
101.8 / 100.7
|
101.3 / 99.5
|
Leading → Weakening
|
|
EFA developed ex-US
|
99.1 / 100.5
|
99.9 / 101.3
|
Improving
|
|
IWM small caps
|
98.8 / 100.4
|
99.1 / 101.2
|
Improving
|
|
GLD gold
|
97.9 / 97.7
|
99.0 / 99.7
|
Lagging
|
|
EEM emerging
|
97.9 / 98.2
|
97.9 / 98.6
|
Lagging
|
World markets against ACWI (no risk read)
|
|
Week 44
|
Week 45
|
Quadrant
|
|
EWH Hong Kong
|
100.5 / 102.5
|
102.3 / 102.7
|
Leading
|
|
EWU UK
|
101.1 / 101.7
|
101.7 / 101.8
|
Leading
|
|
SPY US
|
102.1 / 100.8
|
101.6 / 100.2
|
Leading
|
|
INDA India
|
99.2 / 101.2
|
101.2 / 102.4
|
Improving → Leading
|
|
FXI China
|
99.0 / 99.5
|
100.7 / 102.6
|
Lagging → Leading
|
|
EWG Germany
|
99.4 / 100.6
|
100.4 / 101.6
|
Improving → Leading
|
|
EWQ France
|
98.5 / 100.9
|
99.2 / 101.9
|
Improving
|
|
EWJ Japan
|
99.8 / 98.3
|
98.3 / 97.7
|
Lagging
|
|
EWT Taiwan
|
99.8 / 97.8
|
98.3 / 97.6
|
Lagging
|
|
EWY Korea
|
98.3 / 98.4
|
98.1 / 98.5
|
Lagging
|
|
EEM emerging
|
97.9 / 98.2
|
97.9 / 98.6
|
Lagging
|
How to read this
·
RS-Ratio: Smoothed relative
performance against SPY (sectors) or ACWI (assets and countries), scaled around
100 over 21 weeks.
·
RS-Momentum: Change in RS-Ratio,
scaled over 10 weeks; above 100 indicates an improving relative trend.
·
Quadrants: Ratio / momentum above
100 / above 100 = Leading; above / below = Weakening; below / above =
Improving; below / below = Lagging. The usual sequence is Leading → Weakening →
Lagging → Improving → Leading.
·
Risk reads: Compare offense with
defense. Sector offense comprises tech, discretionary, communications,
financials, industrials and materials; defense comprises staples, utilities,
health care and real estate. Asset offense comprises domestic and overseas
stocks, small caps, high yield and commodities; defense comprises Treasuries,
gold and the dollar. Corporate bonds are neutral.
·
Country returns: US-listed funds
measured in dollars include currency effects.
Gold glows in the dusk
Markets bend beneath the wind
Fall waits out the storm
OT Trend’s Rotation tab contains
the maps. Available on the App Store with a free one-week trial.
For information only, not
investment advice. Readings reflect relative strength and historical drawdown
risk, not future returns. Do your own research and manage your risk.
.png)
