Summary: Markets remain broadly risk-off with weakening internals, deteriorating breadth, and all major indexes declining toward their 200-Day Moving Averages as geopolitical tensions, inflation pressures, and a stronger dollar weigh on sentiment. Semiconductors remain a notable area of strength and oversold conditions across several indicators suggest the potential for a sharp reversal, though elevated volatility and defensive leadership warrant caution.

Risk On

• Strength in semiconductors remains a strong point in this market. (+)

Neutral

• Risk gauge improved to a neutral with the relative weakness in rates. (=)
• Volatility sustained at elevated levels, off a little from the prior week, though.  (=)
• Considering how oversold we are on the McClellan Oscillator and among the modern family members, we need to be alert for a sharp reversal. (=)
• Gold held at relatively high levels, though off its peak in January, still digesting its parabolic move in 2025. Unless gold breaks both its 50-Day Moving Average, support at $440 should hold. (=)
• With no end to the war in Iran in sight, and inflationary pressures, bonds are indicating rate cuts are unlikely but the Fed will not raise them . (=)

Risk Off

• Seasonally, we are in one of the weaker periods of the year for equities, though it tends to strengthen into the end of the month. (-)
• Market internals weakened significantly (McClellan oscillator at extreme levels) with the cumulative advance-decline line breaking key levels. 
• The color charts (moving average of stocks above key moving averages) is negative across all the indexes and time frames. (-)
• The new high new low ratio deteriorated further.(-) 
• Soft commodities, energy, and even clean energy led the market this week. (-)
• With the exception of semiconductors, all sectors indicated risk-off including energy and utilities. (-)
• Despite the sell off, volume actually improved to a weak risk-off reading. (-)
• Markets were weak, with all four indexes down between -1% and -2.5% and are approaching their 200 Day Moving Averages. TSI’s have flipped negative in three indexes, each of which is down about -3% on the year. (-)
• The value vs growth ratio on a short-term basis is neutral,though both value and growth are in weakening phase changes. (-)
• The modern family revisited the prior week lows in an overall weakening posture. Regional banks had the worst phase change into a distribution phase, sharing company with retail. (-)
• On a short-term basis, foreign equities are underperforming the S&P. (-)
• The soft commodities are showing inflationary pressures. (-)
• Oil closed at a new weekly high amid concerns about escalations in the Middle East, shipping, and insurance costs. (-)
• The dollar strengthened considerably this week, a flight to safety amidst the growing geopolitical concerns. (-)

Actionable Trading Plan

Markets remain in a risk-off posture with weakening breadth, negative phase changes across the Modern Family, and all four indexes drifting toward their 200-Day Moving Averages. However, conditions are becoming increasingly oversold as reflected in the McClellan Oscillator and several stretched Modern Family members, suggesting the potential for a sharp reflex rally if key support levels hold.

Bullish Scenario (Tactical Bounce):
If the indexes hold their 200-Day Moving Averages and market internals begin to stabilize (improvement in the McClellan Oscillator, new high/new low ratio, and color charts), look for tactical long opportunities in the strongest leadership areas. Semiconductors remain the clearest relative strength group and could lead a short-term rebound. A bounce could also develop if volatility continues to ease and breadth begins to repair, particularly into the seasonal strength that often develops later in the month.

Bearish Scenario (Break of Support):
If the major indexes break decisively below their 200-Day Moving Averages and breadth continues to deteriorate, expect further downside pressure. Under this scenario, maintain a defensive posture with reduced equity exposure, avoid weaker sectors such as regional banks and retail that have already shifted into distribution phases, and focus on areas benefiting from current macro trends such as energy and soft commodities, which are showing strength amid rising oil and geopolitical tensions.

Risk Management:
Position sizes should remain smaller than normal while volatility stays elevated. Watch the 200-Day Moving Averages across the indexes as key support, along with ongoing readings in market internals. If breadth begins to improve and oversold conditions unwind constructively, increase exposure selectively; if conditions worsen, prioritize capital preservation until the market establishes a more durable base.